mortgage market, consumer markets, interbank markets, we brought down interest rates, increased the availability, and improve the functioning of the markets in those cases. >> the gentleman's time has expired. >> thank you, mr. chairman. and, chairman bernanke, you are left, and we are far to be right. one of the things that you mentioned in your testimony was about regulatory reform. and you had a bullet point there, and one of those bullet points was enhanced protection for consumers and investors in financial dealings, and then on page 8, you said "we are expanding our supervisory activity to include risk-focused issues, non-bank subsidiaries, holding companies." as you are aware, the administration has laid out a blueprint for regulatory reform, and the chairman also has a bill, and one of the pieces of

that is an interesting concept of separate in the consumer compliance from the primary regulators and having a separate entity. the first question i would have is what do you think about that structure? >> well, i understand the rationale and white people would like to have it. i will not criticize it. the fed has been doing a good job for the past three years or so, and we are committed to do it, and we will continue to work in an area. >> are there some dangers bifurcating regulatory process, where you have one entity looking at consumer products and determining what products and financial institutions can offer and endorsing those and having another regulatory agency looking at the safety and soundness, and how does that work? . and soundness and how does that work? >> there are some costs to it in that he would have doubled the

exams and there wouldn't be as much coordination between the safety and soundness and consumer protection issues so there would be some issues related to that separation. >> so, at a time when i guess we are all feeling it is time to tighten up the regulatory structure, make sure we plug the holes and that's moving forward if we had some places where we weren't actually able to have the ability to or in fact doing the ability to or in fact doing our make sense? >> well, the argument for doing it i think is that those who believe that you need a separate agency that will be committed to consumer protection will have the institutional commitment outweighs some of these other costs and i simply noting the federal reserve is also committed in wants to be committed to that goal. >> if you were writing the regulatory reform would you keep them the same and not separate them? >> if i were writing it, i would keep the consumer protection which the federal banking

agencies with additional measures to ensure a strong commitment. >> thank you for that. the second thing is, some of your projections in looking forward, what you think the economy is going to be like in 2009 and 2010 in relationship to jobs for example. when you were using the numbers and assumptions you were using, did you assume that congress would not continue this huge deficit spending, where we are on track to literally double the national debt? are your assumptions based on performance going to get better if congress has a better fiscal policy or are your job assumptions based on continuing to spend money like drunken sailors? >> our forecast were based on our best projections of what government spending is likely to be and in particular includes the fiscal stimulus package. >> and come up with your

assumptions than that this would be the job situation, assuming that congress does not do something about the current level of spending? >> if the fiscal stimulus package did not exist for example we would anticipate there would be higher unemployment. >> you are not on the same page. the stimulus package is already done. i am talking about the fact that for every dollar this congress is spending right now we are borrowing 50 cents. if that trend continues in the future appropriations and some people talking stimulus to cop, with that alter your job prediction down the road? >> down the road it might. as i talked about in my testimony i do think it is important that we look at medium-term fiscal sustainability and we have a plan for getting back to reasonably low deficits and a sustainable debt to gdp.

>> what you are saying is 2 trillion-dollar deficits a year for the next for five years is not a sustainable? >> no sir, it is not. >> thank you. >> representative cleaver. >> thank you very much for being here. i read over the weekend that the unemployment rate in california is the above 11%, and the hill reported last week that the federal reserve reported that unemployment was between nine and ten and would continue to rise. if this is in fact going to happen and you look at california, ohio, michigan, which already double digits, should we expect another round of foreclosures? the chairman asked you earlier about commercial. doesn't all of this almost make

for a perfect storm for another avalanche of foreclosures? >> the combination of unemployment and falling house prices, the double trigger, this great high rate of foreclosures. our assessment of the foreclosures is that it is likely to be, it is likely to peak in the second half of 2009, corresponding with the peak in the unemployment rate and perhaps be somewhat less than 2010, but clearly we have high levels of foreclosures and unemployment rates would be the reason for that. >> this may be more may be theological, or philosophical, but if you look at, i mean you and others in the federal reserve and even in the administration are saying that things are stabilizing. we are making progress. that is not quite compatible with what you hear with the

talking heads on television, and nobody can control those. but, our attitude toward the trouble may be more problematic than the trouble, and i am wondering, you know, what can we do to change the atmosphere of the country? you know, consumers are loath to go out and by employers, even if they are seeing things stabilizer not come incline to begin to hire or rehire. what can congress do? what can be done to not to stabilize the economy but to stabilize our attitudes? >> i am not sure what to suggest there, except i'm obviously-- gude leadership and good explanations help but the public has been responding to some

signs, some glimmers if you will of improvement, so consumer sentiment for example has improved somewhat as stock markets have gone up and as the yellow kid looked better and the job situation cassilly stopped deteriorating as quickly as it was. i want to be clear that we have a very long-haul here because even though the economy turns up in terms of production that unemployment will stay high for quite awhile so it will not feel like a really strong economy. >> thank you and the yield back the balance of my time mr. chairman. >> the gentleman from indiana-- i am sorry. are you finished? mr. castle. i apologize. the gentleman from delaware is recognized. >> thank you mr. chairman. chairman, let me say in praise of you because myuestions may imply some negatives. i think you are doing a good job

on monetary policy and i think that meets one of the goals of the humphrey-hawkins act. just looking at that act, it outlines for goals for restoring the economy, full employment, growth in production, the balance of trade and budget which i think price stability is the one that stands out now. i think that as a lot to do with what you do and maybe this is government 101, but i am not 100% sure what your role is with the administration. we are watching a circumstance in which we have deficits creating greatly. debt will go up over $10 trillion according to the budget and in the next ten years and so. of poor patients are up dramatically for this year at least. the health care legislation that is being considered in the house and the senate doesn't seem to have any real cost controls and it. some may be passing way but that but that is about the extent of

it and are probably in trouble, because of that. my question to you it is, does the executive branch of government, the white house consult with you about any of these broader economic issues? i am a part of their responsibility under humphrey-hawkins is to try to make progress toward these goals and it seems to me just setting monetary policy you know will necessarily solve the problems of the full employment, the growth production in the balance of trade and budget. i did not know if that is just off balance for you and for them, or if there is any consultation going on. obviously if you have any comments about your point of view on some of these expenditures, i would be interested in hearing them as well. >> of course the federal reserve is nonpartisan an independent. i to speak to the president's advisers periodically as they speak to members of congress and their staff. in terms of my policy positions, because i am nonpartisan, i try

not to get involved in the details of specific programs, fiscal programs in particular but i have spoken to the issue of fiscal sustainability which i did-- begin today and the importance of when thinking about the programs that one is undertaking, timeframes, cost in silwan to think about the implications for the federal budget, to make sure that we have a trajectory that will be sustainable in the medium term and i have made that point several times and am sure the administration as well as congress are quite aware that point and achieving it of course requires some effort. >> maybe we would be better served to let you go right note to the white house and keep making the point based on what we have seen. following up on something the gentleman from texas asked on the financial protection agency that is being proposed. did i hear you say, you saying that you would keep the consumer protection functions that you

have the federal reserve there, if you had your preference in that area? >> as i have said, i am proud of the work we have done. i think we are well placed to do it. we have a lot of talent. we have a wide range of people. in terms of economists, financial specialists, payment specialist as well as lawyers and consumer specialist. there compliments with the supervisory activities so with the congress decides to consider that option, we are very interested in pursuing it ourselves. >> and you indicated that, you said several new rules you are working on including rules on mortgage originators and that area. can you go through that list again quickly? >> we are having a meeting on thursday where we will announce some new rules that are being circulated for comment, and they are primarily, primarily disclosure changes, consumer tested disclosure changes for mortgages and mortgage origination cent for home-equity

lines of credit and we are also going to address and that rulemaking yield spread premium which is of brokers and other lenders are paid for making mortgages so that is an issue we will be addressing as well. >> thank you. at the governors' conference which just took place, which is republicans and democrats down an alabama i believe, mississippi i guess it was actually, they indicated they were not interested in a second stimulus. that is obviously something sort of hypothetical at this point. would you agree with that? i have heard you reference the fact that the first emulous is still being spent out there and has a long ways to go. >> i think it is less than a quarter of the first stimulus has been spent and we will have to see how the economy ball so i think it is premature to make any judgments. >> they also indicated they were concerned about restalin health care plan. the overmedicate costs and other things they are concerned about. do you have any-- i am sorry, my time is up. i may submit a question in

writing to you. >> the gentleman from indiana is next. are you ready? we will then be going on the democratic side, seniority from then on. >> thank you mr. chairman. vet chairman bernanke thank you for being here. let me ask you a question alaikum from an area that does a lot of manufacturing and is relying on credit. what would have happened last fall if we had just walked away, and had not passed the program? >> i think you would have had a very good chance of a collapse of the credit system. even what we did see after the failure of lehman was for example commercial paper rates shot up and availability declined. many other markets were severely disrupted, including corporate bond markets, so even with the rescue and even with the stabilization be achieved in october there was a severe increase in stress of the

financial markets. my belief is that we have not have the money to address the banking crisis we might very well pettite platts of the global banking system that would have created a huge problem in financial markets that might of left it several years. >> have lost any of the funds that the fed has@@@@@@ >h áu á on all other lending and programs, which is 95 sermon our balance sheet, we are making a nice profit. >> in regard to the tough the to the talf program, where we hope for some help, at the present time, none of that has gone to floor plan of lending. what other areas do you think can help open up for lending? >> we know the sba has helped a

little bit. what other avenues are being explored or do you think are available all there? >> we are continuing to look a floor plan lending. there are several possibilities. one and particular, as we are doing a review, one of the credit agencies whose rating we will assess and the criteria in which we will accept those ratings, depended on what that list is and what used to have for it the floor plan, some 4 pin deals can get the aaa rating and be eligible. we will be putting out roles very soon. . they will be putting out roles on the criteria for choosing rating agencies. >> what are the other-- what is called the hareco rate, and on floor plan that is the highest of all. the reason for that, and is there a review of that, that might come down the road? >> the haircuts are set based on

evaluations of the riskiness of the various assets. i think there's a lot of uncertainty right now about four plan given the state of the industry and what is happening with gm, chrysler and so on and i hope is that in the next few months, as the situation become somewhat clearer it could be that ratings will be upgraded and that we will see is so much better situation but right now it is a lot of murkiness in terms of the credit quality of the floor plan loans. >> we are looking at a december 31 determination date as of now but i think approximately 27 billion out of the potential 1 trillion has been lent out. has there have been any looking to extending that termination date? >> we will extend it, if conditions warrant. we will try to give the markets plenty of advance notice. were not going to necessarily try to have any particular number. we are going to f.a. to make a

judgment whether or not the conditions of the markets are sufficiently disruptive that such an intervention is necessary. remember this is based on a determination that conditions are unusual pandith norm-- markets normalize we should no longer be using that kind of program. >> one last question, the small businesses in our area, they come up and say you know, we just can't get the credit we need. we can't get the help we need. and, i am not talking about the loans that should not have been made but the loans to good businesses that aren't being made. approximately what timeframe do you think the small business owners will be able to, to see the same kind of credit availability they had before? we have had so many credit organizations just walk away. can't make loans anymore, don't want to. >> in terms of having the exact

same terms and conditions tt they had before the crisis may be that will never come back because of credit is permanently tightened up in that respect. i'm hopeful that as things stabilize, and we are seeing some improvement says the economy stabilizes that we will see better credit flows. >> thank you mr. chairman. >> thank you mr. chairman and i want to thank chairman bernanke for his leadership, for all the criticisms about transparency of the fed, many of which i share. you have always been a very plain spoken representative of the fed, certainly much more clear and candid than your predecessor, who made the oracle seem downright were those. to that and, listening to the previous questions he referred to, my friend, mr. cleaver, that is not going to feel like a recovery and we have talked about some of these issues which

begs the question, the last to recover is which of minutely too much more shallow recessions then what we are in now, they were characterized as jobless. do you believe that this will be a jobless recovery as well, and given the answer either way, what shape do you believe that recovery will take? >> we expect a gradual recovery. i don't know what letter that corresponds to. we should be picking up steam over time, perhaps well above the potential rate of growth by 2011. we do expect to see positive job creation in the end of this year or early next year, but it is going to take a while, given the pace of growth for the hannan plenary to come back down to levels that we would be more comfortable with. so in that respect it should take time for the labor market to return to normal. >> in your op-ed in today's journal and it your testimony

you spend a great deal of time talking about preparations for the fed-- the fed is making in terms of the exit strategy. what metric or metrics are most compelling that allow you to read a recovery and given, in your testimony there is a correlation between inflationary fears and your prediction of when the recovery begins, essentially munaf villosity kicks then and the money supply, the recovery and the inflationary pressure or concurrent, so what metrics the u.s. valuate that allow you to get ahead of that curve when that knock on the fed has always been that they are too late reading the trends? >> it is a very difficult problem and even though we have these unusual circumstances it is really the same problem we always face as you just pointed out, picking the right moment and taking your appropriate pace. since monetary policy takes time to work the only way we can do

that is by trying to make forecasts, make reprojection and we use large amounts of information including qualitative information, and if the receive, formal models, a whole range of techniques to try to estimate where the economy is likely to be a year or a year-and-a-half from now. is a very uncertain business but it is really all we can do and based on that we try to judge the right moment to begin to raise rates so we will be looking to see more evidence of a sustained recovery that will begin to close the albert gap and gid to improve to labor markets and looking for signs of inflation. there are expectations that would cause us to respond as well. >> given the debate about overhauling regulatory structures and the role you have played in that as well as others, you are having to carve out a separate approach to these

new non-bank financial institutions. which, to me sort of raises the question, which is probably going to be one for historians to resolve, should the barriers between banking and investment have ever been torn down? in other words was glass-steagall the right approach after the graham leach bliley the wrong approach? says the enough time lapsed as we move for the setting up an entirely new regime? >> i don't think that less steagall, if it had been imports would it prevented the crisis we saw. we saw plenty of situations where the commercial bank on its own or an investment bank on its own had problems with out crossed the text between those two categories. on the other hand i think that we do need to be looking at the complexity and the scale of these firms and asking do they pose a risk to the overall

system and if that risk is too great, is there reason or scope to limit certain activities and i think that might be something we should look at but i think >> you can watch the hearing in its entirety by up visiting our web site, c-span.org there are links to news reports on the hearing. the fed chairman will be back on capitol here -- hill on wednesday to testify before the senate banking committee. >> up next, senate finance committee chairman max baucus talks about the ongoing negotiations on health care legislation. then comment on healthcare from president obama at the white house.

>> on "washington journal" we will look at the health care debate men -- debate with sam youngman, dr. ray gibbons, and gene green of texas. we will take your questions on the economy. michael examines the budget agreement between governor schwarzenegger and the state legislature. "washington journal" is live on c-span every day at 7:00 a.m. eastern. >> susan jacoby on the ongoing fascination with the espionage trial and the house un-american activities committee hearing. at 8:00 p.m. eastern and pacific on c-span.

>> a bipartisan group reach a compromise today on provisions of health care legislation. max baucus of talks to reporters after their closed-door meeting. -- talked to reporters after their closed-door meeting. >> we made significant progress today. it was close to a 3 hour meeting. today we brought in the head of the joint committee on tax so we could discuss offsets. he was very helpful and valuable. i mentioned this morning that we talked with actuaries to help us

understand the interplay of subsidies and penalties and affordability, etc. as an option. this afternoon, he was the next one who could give us an of. explanation on the of said. there were a few reference 0.1 -- reference points. [unintelligible] there is one potential of said that was significant. the second reference was revenue. we still want to be deficit neutral over 10-years. it was very helpful. he brought a high level of comfort and better understanding, not that we completely solved the osset issues, but there is a higher

level of comfort. we will be back tomorrow. we will refine some ideas that we gave back to him. a light to complement -- i would like to complement him. it is very comforting to ask questions and get answers. he gets back to us quite quickly. we will go back to his people tonight -- he will go back to his people tonight for further refinement. we are making headway. i talked to the president today. he asked how things are going. i explained that they were great. we are making headway. we are making progress. it is the same prostitutes --

positive attitude. all six in the room wanted to get to a yes and get this done. we agreed there is even more investing by all the senators on both sides of the aisle. that is not to say there was not much before. there was before. >> i've heard grumbling from democrats today of all concerned whitehouse is not giving clear direction to the negotiators. could you address that? >> i spoke to the president today. i gave him a proper support. -- a progress report. it was very chemical and warm conversation. -- it was a very amicable and warm conversation. it was very comforting. >> what specific policies?

>> i asked him about a couple. it was a very constructive conversation. i found that encouraging. >> did the president expressed the view is happy with the amount of planning? >> he did not express a view on that one way or another or did he implies. -- imply it. he seemed impressed with the progress but we are making. >> there was mention of a premium tax. was that something that jct discussed today? >> that is an idea that is on the table. we are looking at it. it is one idea that is under consideration. i do not want to get into details. i did that would help.

you never know where we will end up. i do not want to the people astray. we are getting very close. at the to be little less than $1 trillion. thank you everybody. >> are we going to see you again tonight? >> unfortunately, i do not know. >> what about such a day? what i am not one to answer that one. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> now president obama's comment on health care and the fighter. he talked to reporters at the white house for about 10 minutes. but i want to say a few words

about a very important vote that is to place in congress. long before i took this office, i argued that meeting our greatest challenges would require not only change in policy in washington but changing the way we do business in washington. i promise that part of that change would be eliminating waste and inefficiency in our defense projects. it is reform that will better protect our nation, our troops, and save taxpayers tens of billions of dollars. i will do what ever it takes to defend the american people. that is why we increase our funding for the military and why we will always give our men and women in uniform the equipment they need to get the job done. i reject the notion that we have to wait -- waste billions of taxpayer dollars on outdated and unnecessary defense projects to keep this nation secure. that is why i've taken steps to reduce the defense contracts. that is why i had signed an

overwhelmingly bipartisan legislation to limit cost overrun on weapons systems before the spiral out of control. that is why i am grateful that the senate just voted against an additional 1.7 $5 billion to buy f-22 fighter jets that military experts and members of both parties say we do not need. at a time when we are fighting two wars and facing a deficit, this would have been an inexcusable waste of money. every dollar of waste in our defense budget is a dollar we cannot spend to support our troops or prepare for future threats or protect the american people. our budget -- if more money goes to f-22's, it is our troops in citizens that lose. i want to think -- thank irrigate for leadership on this issue and every member of congress that put policies aside. i particularly want to thank

senators 11 and mccain for helping to make this happen. i have also said that health care costs are the biggest drive is of our deficit. no one disputes is that. i am looking forward to meeting with several members of congress that looking to pass a health insurance reforms to expand coverage and provide more choice. i know there are those who openly declare their intentions to block reforms, the familiar washington scripps that we have seen many times before. these opponents would rather score political points than offer relief to americans who have seen premiums double three times faster than wages. they would maintain a system that works for the insurance and drug companies while becoming increasingly unaffordable for families and for businesses. there are many others who are working hard to direct this crisis. there is a tendency in washington to accentuate the

differences in some of underscoring common ground. we are closer than ever before to the reform of the american people need. we will get the job done. i have urged congress to act to the health care reform bills that are making their way through the house and senate. it is a consensus about how to move forward. but we lay out the substantial common ground -- let me lay out the set a common room. we agree our health reform bill will extend coverage to provide protection for the american people. under each of these bills, you will not be denied coverage if you have a pre-existing medical condition. you will not lose your health care if you change jobs, if you lose your jobs, or to start a business. you will not lose your insurance if you get sick. we have agreed that our health reform bill will promote choice. americans will be able to

compare the price and quality and pick the plan they want. if you like your current plan, you'll be able to keep it. if you like your current plan, you will be able to keep it. each bill provides a public auction that'll keep companies on this, ensuring coverage affordablility. we will invest and programs the lead healthier lives. we will save money, prevent illnesses, and increase competitiveness. we have agreed that our health reform bill will protect american families from financial catastrophe if they get sick. that is why each of these bills have out of pocket limits that will help insure families do not go bankrupt because of illness. we have agreed that our health reform bill will include dramatic measures to cut costs while improving quality. each of these bills improves

oversight while cracking down on waste. each will help reduce waste in insurance companies. each of these bills will provide incentives so that patients get the best care, not just the most expensive care. the kids is is that we have for just a limited to congress. -- the consensus that we have forged is not just limited to congress. providers have agreed to do their part to increase the rate of growth. the pharmaceutical industry has agreed to spend -- to spending reductions. hospitals have agreed to bring down costs. the american nurses association and the american medical association who represents millions of nurses and doctors who know our health-care system best have announced their support. we have trouble long and hard to reach this. i know that we have further to go.

i have to say that the american people are absolutely clear that this will not be easy but that the road we have traveled does not just stretch back through the six months of my administration. it stretches back year after year, decade after decade, there all the times that washington has failed to tackle this problem. we have heard excuses that delay and peter reform. -- defeat reform. people in washington play the politics of the moment in supporting the interests of people first. that is how we ended up with premiums running three times faster than wages. that is how we want to put the benefits -- businesses choosing between benefit in shutting their doors. that is the status quo. that is what we have right now. the american people understand that the status quo is unacceptable. they do not care who is up or

down politically in washington. they care about what is going on in their own lives. they do not care about the latest line of political attack. the care about whether families will be crushed by raising premiums. -- if they -- they care about whether families will be crushed by rising premiums. others will simply focus on scoring political points. we have done that before. we can choose to follow that play again and then we will never get over the goal line and we will face an even greater crisis in years to come. that is one-half we can travel. or we can come together and say it will be different. we can choose action over inaction. we can choose progress are the politics of the moment. -- over the politics of the moment.

i can guarantee that when we do pass this bill history will not report to the enlisted bates, indoor record the hard work done by the members of congress who passed the bill. that is the work we have come here to do. i look forward to working with congress in the days ahead to getting the job done. thank you everybody. >> the president met with democratic members of the help commerce committee to discuss the health care legislation. it included members of the blue dog coalition, a group of conservative democrats who have expressed concerns of the cost of the health care proposal. the congressman talk to

reporters following the white house meeting. >> we agree concern on the cost of the legislation and how it will remain deficit neutral. that is a view that is not just there is but ours as well. the president expressed his great and strong commitment that the legislation that he signed will have to be deficit neutral and will hold down the cost of the future. i want to call on congressman mike ross was in the chairman of the blue dog organization. >> this task force -- we had a

very lengthy and a good discussion with president obama and his senior staff, as well as chairman waxman and chairman palone among others. the president indicated that he wanted to see four things accomplished. he said it must be deficit neutral, contain costs and reduce health care inflation, we have to cover as many people as he possibly can, making health insurance and forcible -- affordable, and now we need insurance reform and we have to cover pre-existing conditions. we share all of those principles and those concerns. the meeting with the president lasted for little more than an hour. we talked about ways to bend the cost curve. health care is growing at twice the rate of inflation. we talked of ways to get health care growing closer to the rate

of inflation. there are a number of potential cost cutting measures. the american people expect that before we consider any type of new revenue. they want to squeeze every ounce of savings that we can out of the current system. that is what we are demanding. there are about a ten issues as we are concerned with. cost-cutting is first on that list. we spent more than an hour with the president, focused specifically on the cost containment. there are a lot of ideas out there and good negotiations. it was productive. no final decisions have yet been made. quite frankly, we have to wait for the cbo to score the bill as well as the potential cost cutting measures. >> what kind of cost-cutting measures? >> mitch mcconnell comment on health care policy on the senate floor. mr. mcconnell: mr. president, americans are eager for health

care reforms that lower costs and increase access. this is why many of us are proposing reforms that should be >> we need to reform our medical liability laws, strengthen wellness and prevention programs that would encourage people to make healthy choices like quitting smoking and losing weight. addressing the needs of small businesses without killing jobs. the administration has taken a different approach to health care reform. the more americans learn about the, the more concerned they become. it is good that the president plans to spend a lot of his time in the days ahead discussing the administration plan for reform. people need to know what the administration's plan is. specifically, americans have concerns about losing the care they have and spending trillions

of dollars for so-called reform that could leave them with worse care than they have now, especially if it is paid for by seniors and small-business owners. one thing americans are extremely concerned about is the prospect that they will be forced off their current plan as part of a government takeover of health care. despite repeated assurances from the administration to the contrary, the independent congressional budget office says that just one section of one of the democratic proposals we have seen would force 10 million people off their current health plan. americans do not want a government takeover and they certainly do not want the government to spend trillions of their dollars to pay for it. especially if the care they end up with is the care they already received. especially if the money that is spent on these so-called reforms only adds to the national debt. the press and has repeatedly

promised that his reform would not add to the debt. both the house and senate reform bills that we have seen would do just that. this is why even democrats have started to backpedal away from the demonstrations planned. one reason for second thought is that the director of the cbo has sounded the alarm over the administration scream that its reforms with cuts -- administration's claim that its reform with the costs. he said the administration's reform would actually lead to an increase in overall costs. concerns like these about cost and debt had been building slowly for weeks. another growing concern among democrats is the impact the entire cost would have on state in the form of higher medicaid costs. at a time of tight budgets, this is something that governors from both political parties are not very happy about.

bill richardson from new mexico has said, and i'm quoting him, "i am very concerned about the cost issue, particularly the trillion dollar figures being batted around." expanding medicaid may look like an easy way to expand access, but it will mean increases for both federal and state taxpayers. this could be a devastating blow to states like kentucky and others which are already starting to pay the medicaid costs. the demonstrations at first to pay for the plants are not the least bit reassuring. the two main groups they are targeting are the last two that should be expected to pay for it, seniors the medicare cuts, and small-business owners through higher taxes. to me it is just common sense that in the middle of a recession the last thing we should be doing is raising taxes on small businesses.

both the bills we have seen would do just that. under the house bill, taxes on some businesses would rise as high as roughly 45%. this means that in order to pay for health care reform, democrats would increase the tax rate on some small businesses to about 30% higher than the rate for big corporations. taxes would go up so much under the house proposal that the average combined federal and state tax rate for individuals would be about 52%. 52%. but consider the figure for a moment. -- let us consider that figure for a minute. to pay for a proposal that would not even address all the concerns, which might even increase overall health-care costs, democrats in the house would raise the average top tax rate in the united states to about 52%.

the charge behind me was created by the heritage foundation. it appeared last week in the "wall street journal." it shows that the house bill would raise the top u.s. rate above even france. of the 30 countries and that the oecd measures, only belgium, sweden, and denmark have higher rates. five u.s. states would have tax rates even higher than those of belgium and sweden. the u.s. is in the middle of a recession. we have lost more than 2.5 million jobs since this january. families are losing homes. the last thing they need is a government takeover that kills even more jobs, add to the ballooning national debt, increases americans. america's long-term costs, and needs america is paying more for worse here than they now receive.

the proposals we have seen are not in complete. they are indefensible. it is a time of spiralling debt and ever increasing job losses. maybe this is why the administration has started to insist on an artificial deadline for getting its reform proposals through. we certainly do need to rush into money to a flawed proposal. the american people and members of both parties are calling on us to slow down and take the time to get it right. health care reform is too important to rush through and get it wrong. we saw what happens when some russians spent a trillion dollars on artificial deadlines with a stimulus -- rushed through and spend a trillion dollars on an artificial deadlines with a stimulus package. the administration should focus

on meeting existing deadlines. the mid-session review of the earlier predictions about unemployment, economic growth, and the outlook for the federal deficit, has traditionally been released in mid-july. now we are hearing the administration may not release its mid-session review until august. that is after congress has adjourned and after the demonstration's artificial deadline for a senate bill on health care. the administration is also struggling to make his decision to close guantanamo by january 2010. the task force said it will meet -- miss the deadline for recommendations. it seems premature to announce the closing date for guantanamo without knowing where the detainees may be sent. the most recent delay is even more reason for the administration to show flexibility and reconsider its

artificial deadline for closing guantanamo. americans want republicans and democrats to enact real health care reform that reduces costs and makes health care more accessible. they do not want a government takeover of the health-care system that cost trillions of dollars, is paid for by seniors and job killing taxes on small businesses, and that leaves them paying more for worse care than they currently have. before the administration rushes to send another trillion dollars, it needs to slow down and focus on fixing our economy and addressing the issues that it is already falling behind. i yield the floor. >> up next, ben bernanke discusses the economy at a capitol hill hearing. then a house hearing, he

testified about his investigation of the troubled assets relief program. that is followed by wednesday's "washington journal." >> this weekend, what in 1997 extended interview with the late frank mccourt, talking about his pulitzer prize-winning book. that is 6:00 p.m. eastern on saturday. >> how c-span funded? >> maybe donations? >> sponsorships or something like that? >> taxpayers? >> fundraising? >> government? >> how c-span funded? 30 years ago, america's cable companies created c-span as a public service, a private business initiative, no government mandate, no government money.

>> ben bernanke today told the house panel that the u.s. economy is improving. they predicted the recovery will be sluggish. it was part of a semi-annual report on the economy. this 1.5 our portion begins with the opening statement by house financial services chairman, barney frank. statement by house financial-services chairman barney frank. >> i will now begin reviewing on substance. ausley welcome the chairman and i think it's very important and i was pleased to see his article in "the wall street journal" about a question very much on people's minds. the united states government according to the federal reserve, the federal reserve for a variety of reasons mostly bought of its choosing the federal government was deeply engaged and increasing liquidity

putting money out into the economy particularly to a constriction of credit and they want people who are concerned that this will be inflationary. i think the chairman has shown consistently has of secretaries of treasury paulson and geithner aware of this but when you were talking about inflation you talking not just about a reality that perception. if people think there's going to be inflation that's inflationary and it's very important the chairman address as he has been doing in a very straightforward way these concerns. i am persuaded by the chairman and others that we are able in an orderly way to undo what we had to do so that there wouldn't be that inflationary impact. i hope we believe the inflationary danger is not the current most important one, but it is i think a very good opportunity for the chairman to address but i also want to talk

about another matter and want to make a confession apparently of the leverage is of apparently my vision is deteriorated more rapidly than i hope to would be. i have looked carefully at deliberations we have seen about the bank of america merrill lynch issue and our colleagues on the government committee have had a number of hearings on that. i must say one of the interesting and potentially constructive things that cannot was secretary paulson's explaining that he couldn't because he has never sent them. that is a practice of i recommend to many others will follow myself, but as i studied all of this here is my problem. i cannot find the villain. many of my colleagues have found

various fillings. they tend to be private sector or public sector depending on the ideology of the founder. but as i look at what happened, what i see is a very difficult situation that threatened further severe damage to an economy already damaged. a repetition of the attack on the credits issue which is central to the functioning of our economy which we have seen in earlier failures, and i believe we had people faced with a difficult situation to say to some of my democratic friends have been critical of the bank of america as i have been and other areas they've not done what they should in modifying mortgages. i would have plenty of criticism to make in the financial but people health said well, why was he not focused entirely on the shareholders? many of my colleagues who have made the criticism said they don't want private-sector people

looking up the narrow interest of the shareholders but they do want them to take into account the broad impact of what they do. possibly terrible credit crunch would hurt their shareholders. as to the federal reserve and the treasury, i think they had a very important responsibilities not to see a repetition of the collapse of merrill lynch by bank of america they would have had very negative consequences. i think there was one thing people need to remember. solutions cannot be more elegant than the problems they seek to resolve. brandt you have a terrible mess it is unlikely those who try to immediate danger of that mess will come out looking clean. not for the first time as an elective officials on a and the economists believe a, how have available to them in a medical approach the counterfactual economists can explain that the given decision was the best one

that could be made because they could show what would have happened in the counterfactual situation. they can contrast what happened to what would have happened. no one has ever gotten reelected with a bumper sticker that said it would have been worse without me. [laughter] probably you can get a ten year without but you can't win office. [laughter] i understand that but we shouldn't let that distort house. and it would not i think eckert collis every so often to admit not every action by every public official was a bad thing and sometimes we should give people credit for trying to cope with the unpleasant reality they can. the gentlemanrom alabama. >> i thank the chairman. thank you for appearing before the committee today for your professionalism and service to the country. all of of us in congress appreciate your willingness to make yourself available on countless numbers of cases both to congressional committees as

we confronted this crisis. so why thank you. over the h@ @ @ @ @ @ @ @ @ @ @j and manipulations of our economy. trillions of dollars in capital commitments and loans have been extended. what started out last year as a large but temporary stabilization effort to prevent a financial collapse has evolved month by month into seemingly a prominent government intervention -- intervention raging. this included ad hoc bailout of institutions deemed too big to fail. d hoc bailouts of institutions deemed too big to fail. many of the competitors of those too big to fail corporations deemed too small to save are no

longer in business. today i read with interest your op-ed in "the wall street journal" acknowledging the need for an exit strategy. something republicans have called on since last fall. simultaneously the obama administration has been spending a staggering amount of money to fund an economic recovery and stimulus that is slow on coming. it's been almost half of the year since congress passed a $787 billion so-called stimulus bill and yet we continue to see record job losses. on the planet has spiked 9.5% and seems headed higher. your testimony predicts the elevated on and went well last through not only this year but next year confirming that and that is despite the assurances that if we pass the stimulus package the unemployment would

peak at 8%. other federal government interventions have failed as well. the administration's $75 billion for closure prevention initiatives intended to keep three to 4 million homeowners and their home as are offered only 220 try all loan modifications. at the same time the private sector and private efforts have their efforts have resulted in millions of homeowners staying in their homes. the american people can be forgiven for increasingly asking tough questions about these enormous government outlays and interventions because so far, mr. chairman, they're has been very little bang for the taxpayer's buck. it's not only these, but the multitude of new proposals coming from the obama administration and their allies

in congress calling for more government control and management, from health care to energy to financial services. one of the central questions the committee needs to answer as it considers reforms or a financial regulatory system is whether regulatory power should be centralized in the federal reserve at a time when our country is facing unparalleled fiscal and monetary policy challenges. the fed has made big mistakes and historic leave the board has reports of identifying and addressing systemic risk before they become crises. a prime example of this is troubled linder c. i.t. allowed to convert to a bank holding company last december and placed under the fed supervision. only after the fed declared it was adequately capitalized. this inability to access risk once again threatens to undermine the fragile economy and erase the 2.5 billion in tax

payer funds provided cit under t.a.r.p.. they would make the fed responsible for identifying and regulating those findings that in the fred's you are systemically significant and preventing systemic shock. republicans believe the fed's core mission and conduct of monetary policy seriously undermined its regulatory responsibilities or expanded in this way. let me conclude by saying at a time when our economic economy faces serious structural problems and threat of inflation if we maintain our current course on spending patterns it distracted and overextended central bank subject to potential political interference is a luxury we cannot afford. republicans believe really think the federal reserve cut its current regulatory responsibilities and focusing on

the core monetary policy mission would enhance the fed ability to execute an effective exit strategy and ensure interest rates that are greatly -- affect both individuals and small businesses with a single goal in mind, sound monetary policy. the proper conduct of monetary policy is the best way the fed can serve the american people. asking the fed to serve is a systemic regulator is just in fighting a false sense of security that inevitably will be shattered at the expense of the tax payer. thank you, mr. chairman. >> the gentleman from north carolina is recognized for three minutes. >> chairman bernanke, look forward to your discussion on the status of monetary policy and the economy. it is good news that many experts say and that the economy has improved since the last time your before this committee in feb to the extent that is true

the federal reserve certainly deserves some of the credit. unfortunately my constituents are not yet feeling it. growing unemployment, foreclosure all are around and the like of much if any rebound in the value of their investments contained delete continue to feed their and sunday and uncertainty whether we have in fact turned the corner but the fed has been a sturdy methodical hand. more public exposure with the fed does has also stimulated discussion about some other things a lot of people had taken for granted. the level of independence from political influence by the legislative and executive branches of government that is appropriate for the fed to have in order to achieve its long-term policy goals. the extent to which the fed's operation is even monetary policy discussions and decisions

should be subject to regular audit. the extent to which the various parts of an operation of the fed should be subject to more transparency. whether the fed having a field along with other financial regulators to pay the equivalent attention to the consumer protection responsibilities as it did to other responsibilities should be stripped of these responsibilities in favor of a new consumer protection agency focused solely on consumer protection. and whether as proposed by the obama administration the fed should be delegated even more power and responsibilities for systemic risk regulation. this certainly is a critical juncture for the fed and i want to assure my colleagues on the committee that our subcommittee on domestic monetary policy, which i chair with the knowledgeable input a ranking member ron paul has been

grappling seriously and consistently with all of these issues. for a change we have even had some members who are not on our subcommittee showing up at our were subcommittee hearings. imagine that three it in the wake of the great depression, concrescence drafted rules that served us well for 75 years. we are facing another once in a generation opportunity to fashion of rules that should serve well for the next 75 years. and chairman bernanke's testimony today is yet another step and harming us with the knowledge and information we need to address these important issues. i welcome the chairman and yield back the balance of my time. >> the gentleman from texas, the two minutes remaining on the republican side, we will make it two and a half. >> thank you mr. chairman and good morning chairman bernanke. the federal reserve in collaboration with theanks has

created the greatest financial crisis the world has ever seen. the notion of limited amounts of money and credit created out of than error has delivered this crisis. instead of economic growth and stable prices it has given a system of government and finance that threatens the world financial and political institutions. real unemployment is now 20% and there has not been economic growth since the onset in the year 2000 according to an on government statistics. permitting debt and credit expansion past 38 years has come to an abrupt end as predicted by free-market economists. pursuing the same policy of excessive spending, debt expansion and monetary inflation can only compound the problems and prevent the required corrections. doubling the money supply didn't work, quadrupling to 12 were either. the problem with debt must be addressed. expanding debt when it was a principal cause of the crisis is foolhardy. excessive government and private debt is a consequence of louis

federal reserve monetary policy. once a debt crisis hit the solution must be paying it off or liquidating we are doing neither. u.s. it is now 273 present of gdp and the crisis of the 1930's it peaked at 1.5%. household debt service is required disposable income and historic high. between 2000 and 2007 correct it expanded five times as fast as gdp with no restriction on spending raising taxes will be present to the economy. by teeing up the bad debt of privileged institutions and dumping of worthless assets on the american people is morally wrong and economically futile. monetizing government debt is as the fed is currently doing is destined to do great harm and in the past 12 months the national debt has risen over $2 trillion. future entitlement obligations are now reaching 100 to william dollars. u.s. foreign debt is

$6 trillion. for and purchase of u.s. securities in may were $7.4 billion down from a monthly peak of $95 billion in 2006. the fact the fed had to buy $30 billion worth of government security last week indicates it will continue its complicity but congress to monetize the expanding deficit. the policy is used to pay for this those lusatian of america and maintenance on wise policy and make up for the diminished appetite of foreigners for our debt since the attack on the dollar will continue i suggest the problems we faced so far are nothing compared to what it will be like with the world not only reject other debt but our dollar as well. that is when we will witness political turmoil which will be to no one's benefit. >> the time for opening statements has expired and for once, i think not before the

patience of the audience. the chairman of the federal reserve is now recognized for his statement. >> chairman frank, mean the delete kringen number bachus and other members and pleased to present the annual policy report to the aggressive policy actions taken around the world last fall way to becoming have averted the collapse of the system and even that would have had extreme adverse consequences for the world economy. even so the financial shock it hit the global economy in september and october were the worst since the 1930's and helped push the global economy to the deepest recession since world war ii. the u.s. economy contracted sharply in the fourth quarter of last year and first quarter of this year. more recently the pace of the decline appears to have slowed significantly and final demand and production have shown signs of stabilization. to labor market however has continued to weaken. consumer price inflation which fell to levels late last year

remained subdued the first six months of 2009. to promote economic recovery and foster price stability the committee last year brought its target for the federal fund rate to historic the low range of 02 a quarter% where it remains today. the excelencia purchase of its conditions are likely to warrant maintaining federal fund rate at exceptionally low levels for an extended period. at the time of the february report financial markets at home and abroad were under intense strained with equity prices at multi-year los riss spreads for private borrowers at elevated levels and some important financial markets essentially shot today financial conditions remain stressed and many households and businesses are finding credit difficult to obtain. nevertheless on that the past few months have seen notable improvements. for example interest-rate spreads d short-term money markets such as the bank market and commercial paper market had

continued to narrow. the extreme risk of last fall east somewhat and investors are returning to the private credit markets. reflecting this great investor corporate bond issuance has been strong. many markets are functioning normally with increased stability. equity prices at the low point in march recovered to roughly the level set the end of last year and the banks raised significant amounts of new capital. many improvements in financial conditions can be traced in part to policy actions taken by the federal reserve to encourage the flow of credit for example the decline in the rates and spreads was facilitated by the actions of the federal reserve and other banks to ensure financial institutions have adequate access to short-term liquidity which in turn increased stability of the banking system and the ability of banks to lend. interest rates and spreads on

commercial paper dropped significantly as a result of the liquidity facilities the federal reserve introduced last fall for that@@@@@@@ @ @ @ @ @ @ @ @ @ @r institutions. the results were reported in may and appear to have increased investor confidence in the banking system. subsequently the great majority of institutions that underwent the assessment raise equity in public markets and june 17th 10 of the largest u.s. bank holding companies all but one of which

participated paid a total of nearly $70 billion to the treasury. better conditions in financial markets have been accompanied by improvements in economic prospects. consumer spending has been relatively stable so far this year and the decline in housing activity appears to have moderated. businesses continued to cut capital spending and liquidate inventories but a likely slowdown in the case of inventory liquidation in the coming quarters represents another factor that may support a turnaround in activity. although the recession and the rest of the world led to a steep drop for exports the drag in the economy appears to be winning as many trading partners are also seeking signs of stabilization. despite these positive signs the rate of job loss remains high and unemployment rate continued a steep rise. job insecurity together with the declines in home values and tight credit is likely to limit gains on consumer spending. the cost stability the recent

stabilization household spending will prove transient is an important downside risk to the outlook. in conjunction with the fomc meeting board members and presidents prepare economic projections covering the year 2009 through 2011. fomc participants generally expect that after the declining in the first half of this year output will increase slightly over the remainder of 2009. the recovery is expected to be gradual in 2010 with acceleration in activity in 2011. although the employee rate is projected to pique the end of this year the projected decline in 2010 and 2011 would still leave on employment well above fomc purpose of the views of the longer run sustainable rate. all participants expect inflation will be lower this year in recent years and most expect to remain subdued over the next two years. in light of the substantial

economic lack monetary policy remains focused on fostering economic recovery. accordingly as i mentioned earlier the fomc believes a highly accommodative stance of monetary policy will be appropriate for an extended period. however we believe it is important to assure the public and markets that the extraordinary policy measures we've taken in response to the financial crisis and recession can be withdrawn in a smooth and timely manner as needed thereby avoiding the risk policy stimulus could lead to a future rise in inflation. the fomc has been devoting considerable attention to issues relating to the strategy and we are confident we have the necessary tools to implement the strategy when appropriate. to some extent our policy measures will on wide automatically as the economy recovers and financial strains ease because most extraordinary liquidity facilities are priced at a premium over orland tristani spreads. indeed total federal reserve credit extended to banks and other participants has declined

from one of roughly 1.5 trillion at the end of 2008 to less than $600 billion reflecting improvement and financial conditions already occurred. in addition bank reserves held up the fed will decline as the longer-term assets we don't mature or are prepaid. nevertheless should economic conditions warrant a tightening monetary policy before the process of unwinding is complete we have a number of tools that would enable us to raise market interest rates has needed. perhaps the most important such tools is the authority that congress granted the reserve last fall to pay interest on balances held up the fed by depository institutions. raising the rate of interest paid on reserve balances will get substantial leverage over the federal funds rate and other short-term market interest rates. because banks generally will of supply funds to the market at an interest rate sycophant ehlers a tichenor risk free by calling balad balances of the reserve. indeed many banks use ability to pay interest on reserves to help

set a floor on market interest rates. the attractiveness to banks leading the excess reserve balance with federal reserve can be further increased by offering banks the choice of maturities for their deposits. but interest on reserves is by no means the only tool we have to influence market interest rates. for example we can drain liquidity from the system by conducting purchase agreements in which we sell securities from the portfolio with an agreement to buy them back at later dates. reversed purchase agreements which can be executed at the primary dealers and sponsored enterprises and a range of other counterparties are a traditional and well understood that of managing the level of bank reserves. if necessary another means of a tightening policy is outright sales of holdings of longer-term securities not only such sales trade reserves and raise short-term interest rates also put upward pressure on longer-term rates by expanding the supply of longer-term assets. in some we are confident we have the tools to raise interest rates when that becomes

necessary to achieve the objectives of maximum employment and price stability. our economy and financial markets face extraordinary near-term challenges and strong and timely actions to respond have been necessary and appropriate. i've discussed with financial stability the congress also has taken substantial actions including the passage of a fiscal stimulus package nevertheless even as important steps have been taken to address the recession and intense threats to financial stability maintaining the confidence of public and financial markets requires policy makers begin planning now for the restoration of the fiscal balance. prompt attention to questions of fiscal stability is particularly critical because of the coming budget and economic challenges associated with retirement of the baby boom generation and continued increases in the cost of medicare and medicaid. addressing the country's fiscal problems will require difficult

races but postponing the choices will only make them more difficult. moreover agreeing on sustainable long-term fiscal term path now could yield considerable near-term economic benefits in the form of lower long-term interest rates and increased consumer business confidence. unless we demonstrate a strong commitment to fiscal sustainability we risk having the financial stability for durable economic growth. a clear lesson of recent financial turmoil is we must make the system of financial supervision and regulation more effective in the united states and abroad. in my view comprehensive reform should include at least the following elements. a provincial approach that focuses on the stability of the financial system as a whole and not just safety and soundness of institutional once and that includes mechanisms for identifying and dealing with risks. stronger capital liquidity standards for financial firms with more stringent standards for large complex and financially interconnected

firms. the extension enhancement of supervisory oversight including effective consolidated supervision to all financial organizations that pose a risk to the system. enhanced bankruptcy resolution regime model on the chrysostom for depository institutions would allow financially troubled eckert and non-bank financial institutions to be wound down without disruption to the financial institutions a system and the economy. enhanced protection for consumers and investors and financial dealings. measures to ensure payment arrangements are to shocks and practices relating to the trading and clearing of derivatives and other financial instruments do not pose risk to the financial system as a whole and finally improved coordination of cross-country's in the development of regulation and supervision of internationally active firms. the federal reserve has taken and will continue to take

important steps to strengthen supervision, and prove resiliency of the financial system and increase the macroprovincial orientation of oversight. for example we are expanding the use of reviews of the financial firms to provide more capri and some understanding of practices and risks in the financial system. the federal reserve also remains strongly committed to carry out the responsibilities for consumer protection. over the past three years the federal reserve has written rules providing strong protection for mortgage borrowers and credit card users among many other actions. later this week the board will issue a proposal using authority under the truth and lending act which will include new consumer tested disclosures as well as rule changes applying to mortgages and home-equity lines of credit. in addition the proposal includes new rules governing compensation of mortgage originators. we are expending supervisory activities to include risk focused reviews of consumer compliance and on bank

subsidiaries of holding companies. our community affairs and research areas provided support and assistance for organizations specializing in for closer mitigation and we've worked with nonprofit groups on strategies for neighborhood stabilization. the federal reserve combination of expertise and financial markets payment systems and supervision positions us well to protect the interest of consumers and their financial transactions. we look for to discussing with congress ways to further formalize our institutions strong commitment to consumer protection. the congress and american people have the right to know how the federal reserve is carrying its responsibilities and how we are using taxpayer resources. the federal reserve is committed to transparency and accountability and its operations degette we report on activities in a variety of ways including like the one i'm presenting to the congress today other testimonies and speeches. the fomc releases a statement immediately after each scheduled meeting and detailed minutes on

a timely basis we've increased the frequency and scope of the published economic forecast of fomc participants. we provide the public with details annual reports on the financial activities of the federal reserve system audited by independent public accounting firm. we also published a balance sheet each week. we've recently taken additional steps to better inform the public about the programs we instituted to combat the financial crisis. we expanded the website this year to bring together already available information as well as considerable new information on policy programs and financial activities. in june we issued a report to the congress that provides even more information on federal reserve programs including breakdowns of lending a seceded collateral and other programs a established to address the crisis. these steps should help the public understand the steps taken to protect the taxpayer as we supply liquidity and the key

to financial markets. the concourse recently discussed proposals to expand the gao over the federal reserve. as you know the federal reserve has aubrey subject to reviews by the gao. the gao has brought authority to the operations and functions. the congress recently granted the gao the new authority to conduct extended by the federal reserve to single and specific companies under the authority provided by section 13 the federal protection act including lunesta but does provide to work. for aig or bear stearns. the gao and in special inspector general have the right to audit our t.a.l.f. program which uses funds from the troubled asset relief program. the congress however purposefully and for good reason to exclude from the scope of giglio reviews erie is notably monetary policy durations and operations including open market and discount window operations. in doing so the congress carefully balanced the need for public accountability with

strong public policy benefits that flow for maintaining appropriate degree of independence for the central bank in the making and execution of monetary policy financial markets and in particular likely proceed guarantee authority in these reviews to the gao as a serious weakening of monetary policy independence. because the gao reviews may be initiated members of conagra's review or the threat of reviews in these areas can be seen to try to influence monetary policy decisions. a perceived loss of monetary policy independence could raise your about future inflation and lead to higher long-term interest rates and reduced economic financial stability. we will continue to work with congress to provide information it needs to oversee activities effectively yet in a way that is not compromised, terry policy independence. thank you, mr. chairman. >> thank you. let me begin with one question because i am pleased that as i

said you've responded to the fear of inflation because i think that you are all capable of control and i also think it's important they not be invoked prematurely with the greater problem i believe the federal reserve commonly thinks is still further on the negative side, and one looming threat we hear about a lot is the commercial real estate issue. there was a great deal of fear that there would be in commercial real estate issue a series of failures that some of the economic problems of the home mortgage would be reproduced. we've discussed this. what is your current posture? do you expect there to be problems, and how were you and other elements of the government ready to respond? >> mr. chairman we are watching the situation very carefully. there's a lot of loans coming up for refinance and the capacity is limited which opposes the

possibility of foreclosure and commercial space. much as in the residential situation. we are urging banks to continue to make loans to #/),dm rb spending has been supported by the boost to dispose from the

tax cuts and increases in benefit payments that were part of the 2009 fiscal stimulus package. with regard to state and local borrowing you know interest rates on long-term bonds declined in april as compared to the credit quality with the fiscal stimulus plan which included substantial increase of the federal grants and state and locality and in the discussion of the labour market there was reference to the fact that ironically one of the things that makes is the participation rate has gotten higher and that is a good thing because you know the emergency unemployment insurance from last july contributed to the participation. i am pleased these are three references by you to the positive impact to intervene in the economy in terms of boosting consumer spending in helping state and local governments directly by revenue and than by keeping down their interest cost

one of those counterfactual as you get to have fun with. we have problems and i think as i said it's good to know that you can on wind. i think a premature on winding would be a great mistake about the counterfactual is had we not passed the economic recovery plan in february of this year with the economy be better or worse? >> mr. chairman as you describe reading the and affected consumers and state and local authorities to have improved the situation so in that respect there's been positive impact but i would withhold the overall judgment since we've only seen about a quarter or less of the money being dispersed and i think there is some time to wait and see how significant the impact will be. >> the impact would have a positive impact -- >> you would so it would tend to raise consumption, yes. >> i appreciate those points you have mentioned. let me just ask one last

question. if the resulting authority resolve does appear to be dissolved, if that authority were vested in the appropriate agencies of the federal government would be aig and lehman brothers and merrill lynch situations have come out differently? >> what they have -- >> come out differently? >> of course it wouldn't have been necessary for the fed or even the treasury of t.a.r.p. to intervene in the situations with a good resolution of 40 we could have wound down the company's and the creditors take loss to eliminate or reduce the too big to fail problem. at the same time of waiting the very destructive effects particularly in the case of lehman on the world financial system. >> thank you. the gentleman from alabama. >> chairman bernanke, the chairman frank asked about the commercial real-estate market. you mentioned t.a.l.f. programs

for the new and legacy program. the new program has been in an operation about a month, is that right, taking loans -- >> yes, that's right. >> and the legacy just about a week, is that right? >> yes, sir. >> i noticed you were going to cut those of december 31st? >> the program right now is slated to end at the end of the year bill we will be reviewing those programs and others to assess whether or not they are needed beyond that time. >> i noticed several others on through the end of 2010. >> be extended several through february, not to the end. >> what is the state of the commercial real-estate market? >> well, for a good bit of the recent years the commercial real estate market was pretty strong even as the residential market was weakening.

but as the recessions have gotten worse the last six months or so we are seeing increased vacancy, falling prices and more pressure on commercial real estate which is raising the risk of lending to commercial real-estate so that is a negative and as it was mentioning to the chairman, the facilities for the refinancing commercial real-estate either through banks or the commercial real debate coke market seemed more limited so we are somewhat concerned about that and paying very close attention to it. we are taking the steps we can to the banking system and through the securitization markets to try to address it. >> i think that may be the wild card and i know the way to think this week came out with a report and barney last week obviously raised concerns. you have talked about a resolution of 40 to veto authority for non-bank financial

institutions. and you have referred to that as expedited bankruptcy. would it be within the bankruptcy code? would it be part of the bankruptcy regime? >> it would be a specially -- a special regime invoked only under circumstances of financial stress and it would be analogous to the law we currently have resulting failing banks which allows the regulators to intervene before the actual bankruptcy occurs to avoid the negative impact of bankruptcy on the market. so yes it could be a broad bankruptcy regime but there would be a special category of bankruptcy invoked only during financial crisis. >> enron, world,, drexel works very well, the bankruptcy regime and do you agree that it's very important that you force creditors to internalize the

cost of their credit decisions? >> absolutely otherwise you have it too big to fail institution which doesn't have any discipline other than the regulatory oversight. >> so this regime would totally reject the too big to fail? you wouldn't be asking taxpayers to guarantee or backstop losses. >> absolutely. too big to fail is an enormous problem. if we don't do anything else we need to solve that problem. this is critical because it would mean creditors would take losses if there are resolution costs the presumption is they would be paid by assessments on the other financial companies. >> with the republicans have proposed our financial services regulatory reform proposal includes an expedited bankruptcy within the bankruptcy code and i would ask you to particular attention to that. one thing that i am also concerned about is even having the financial system take those losses or the taxpayers and i

would hope that we would preserve a true if we call it expedited bankruptcy it is in fact expedited bankruptcy. thank the chairman for his testimony. >> the gentleman from north carolina. >> thank you mr. chairman. chairman bernanke, let me inquire into two areas i need a little clarification on. on page eight of your testimony this morning, you say that we are expanding our supervisory activities to include risk focused reviews of consumer complaints in non-bank subsidiaries of holding companies. what's the authority for that, and i've been under the impression that one of the reasons that was not done

previously is the fed didn't have that authority. is there a new authority or what, under what authority argue acting? >> well, the gramm-leach-bliley, that he would defer to the regulator in dealing with nonbanks, in any case the regulator would be either a state regulator or the ftc, and we've done this in collaboration with those bodies particularly the state regulators, the pilot program that we ran to the examinations of nonbanks was done in collaboration with these other bodies and we believe that in the cooperative spirit and looking at our responsibility to enforce these walls of a somewhat protective stance is justified. that being said i think that congress ought to clarify the presumption of the ability of

the supervisor to look into these subs. >> but it's clear that the fed hadn't been for real proactive in that area prior to this crisis is that right? >> for non-banks of that's right. >> on page five of your testimony you talk a payment of interest only reserve balances which we authorized last fall. had the fed not had that authority prior to last fall at all? >> no, we did not. >> that seems to me to be perhaps even more powerful tool than the adjustment of the fed for interest rates. and i guess i mean little surprised why some central banks had had that authority previously and the fed had not.

can you give a little history lesson on that? >> certainly most banks do have this authority and they set the funds equivalent rate on the open market. the year's interest on reserve rate as a sort of four or backstop. the fed authorities the back to the 30's and we are actually somewhat more limited on these areas than other central banks. other central banks have broad powers to buy assets to pay interest on reserves and land to financial institutions for example we invoked the 14th three authority to lend to our primary dealers and the investment bank's whereas in europe for example any financial institution can borrow from the central bank. >> am i overstating the power that is a potential tool for the fed to use or do you perceive it in much the same way? >> many central banks around the

world use what is called the carter system where they have an interest rate on reserves as the floor and then a lending rate like the discount window rate as the ceiling and that keeps the interest rate market interest rate between the two levels. a lot of banks use that so yes it is a very powerful tool and we wouldn't have been able to expand the balance sheet as we had if we hadn't had that tool to help with the exit. -- in your singing until last fall actually the fed extended the fed power before we granted this authority was actually substantially less than a lot of central banks around the world? >> that's right. >> okay. well, i guess that is a double-edged sword from some of my colleagues. it gives the fed more authority they would likely future. your assessment is that as we

wind down these positions that would be as important or more important than the fed funds rate? >> that interest on reserve rate will help control the fund. they should be closely together so they should be closely tied and both affect longer-term intere rates. so they will be working together. >> thank you, mr. chairman. >> the gentleman reminded me that decision to grant the fed that power was bipartisan, and in fact it first passed the house when the republicans were in the majority, the gentleman was the chairman of the subcommittee, did not pass the senate, there was a lot of that going around, and it then came up again and it was again passed so that has been broadly supported on this committee although not unanimous which

brings me to the gentleman from texas. >> thank you, mr. chairman. in the past, most members of the federal reserve board including your predecessor when they come before the committee endorsed in general the idea of transparency. they don't just say we are against restaurants, it's the definition that counts most members then but also argue for independence, which generally means that they don't want congress to el xm ackley what they are doing -- i saw an article in "the wall street journal" and there are a few quotes i wanted to ask you about, and i do know that all of us can get misquoted in the newspaper, but i want to clarify this because it is either misleading or somebody is confused. and i want to see if i can figure this one out. and the first had to do with you

saying that mr. paul's bill, 1207, the transparency bill, would interfere with the fed's interest rates decision and since i wrote the bill and the intention, and i know the intention has nothing to do with interference with monetary policy or interest rates manipulation there's nobody in the concourse going to be monitoring the federal open market committee. it is after the fact and all it can occur and find out what transpired. there is no management. so, is that your position that this bill if it were to be this bill if it were to be passed@@@@@@@ @ @ @ @ g@ @ @ @

you can do what you want. what about today? interest rates are artificially low. could there be rates to keep interest rates low? it has been documented and written about how other federal reserve chairman, you know, they are on the verge of reappointment and they know the president and all of a sudden, so it's not like it isn't politicized now. it's just fact they can issue a low of loans and special privileges to banks and corporations that is political, this idea that it would be political because we know what happened afterwards. it just doesn't seem to add up. since the time is short of want to go on to the next quote which i find fascinating because hopefully i can agree with you

on this one because in actual quotes this says we absolutely will not monetize the debt. that's one of the major reforms in the distant future there would be beautiful because it would stop all of this chaotic monetary policy inflation and depression and recession and all the mess we have. but you say you will laugh at the same time i quoted the $38 billion that was bought last week and the plan to buy $300 billion of u.s. securities, these securities are bought by dollars you create, if you're buying u.s. securities, what is that if it's not, and besides, if the markets really believe that, that you would absolutely not monetize the debt i think the markets would get hysterical so it seems to me like i would understand exactly what you mean by that. ..

the true definition of inflation is when you increase the money supply in the immediate consequence is, it sends out false, that information to the marketplace so whether it is when the bubble is being formed or afterwards, all you are doing is inflating constantly, doubling the money supply. interest rates are artificial and people make mistakes so it seems to me that you are in the

midst of the massive inflation but i guess you have a different definition, when you double the money supply that is not inflation itself? or are you looking only at prices? >> may i respond? inflation is the change of the consumer price level which is very stable right now in their various measures of money and the broad measures of money, the measures of money in circulation like m-1 and m-2 are not going quickly. >> the gentlemen from california, mr. baucus. >> first of all i want to thank you and the ranking member for computing this hearing and i want to thank chairman bernanke for taking the time to be here once again. by first question is in reference to the derogatory reform plan put forth by the obama administration that puts a lot of faith in the federal reserve's ability to oversee the largest most interconnected firm in the marketplace to prevent against failures. i have a question related to the

financial oversight relate in this test. how you envision the role of the financial oversight council taking shape, just one of the questions and then it is my understanding that the council will play a purely advisory role have been no real power or wait in our regulatory issues and can you describe how the federal reserve would work with the federal consul under this proposed plan? >> yes sir. there is i think, of a misapprehension that somehow this plan makes the federal reserve a super regulator with powers to go wherever it likes. in fact there is a multiple part plan, multiple plants as you point out. a critical component is the council which will oversee the overall strategy and will look for emerging risks and advise regulators on what steps to take so in particular this issue about which large institutions that that would oversee i think that would be prepared for the council to make that determination and not the federal reserve. the federal reserve will work

closely with this council which again will have broadbased ability to gather information and look for gaps and problems in the regulatory system. and other major portion by the way is the resolution resume which would not be the fed be there. that would be the treasury of the fdic. that is critical to winding down firms. the feds role as envisioned by the administration is a modest three irritation of our current system. under our current system the federal reserve is the umbrella supervisor of all financial holding company so we are already the supervisor of essentially all the firms that would like to be identified is tier 1 terms-- firms under the administrations proposal, said the main differences would be we would have some additional authority to add capital liquidity it requirements based on-- and stromer ability to look it nonbanks of says we were discussing before, vis-a-vis. the biggest challenge would be

to take a provincial approach rather than looking at each firm intellectually the intellectual challenge would be to us the question is this not only is this from safe in its own situation, but does its failure threaten other firms, other markets ended so how should you adjust capital and other requirements to accommodate that so the challenging thing for us to do but it does not radically reorient our senate powers. >> as a follow-up question, would you then be in favor of increasing the authority of the council or are you confident the collaboration of the fed and the council would work as stated in the white paper? >> i am very open to discussing the role of the council. i think it is a very important role, to coordinate regulators to oversee the system to identify risks and so on but there may be situations, where the counsel could have authority to harmonize different practices or to identify problems and to take action, so i think we

should discuss you the congress, should discuss of the council should, what powers that should have. >> i hope we do in congress here, but let me refer back to an article that appeared in the "wall street journal." this is july 20th, and in their the death of a global recession has required a highly accommodative monetary policies and you go on and on. bennett says we have greatly expanded the size of the fed balance sheet to the purchase of long-term security through targeted lending programs aimed at restarting the flow of credit. what do you mean by this? >> congressmen, our policy is using our balance sheet to try to improve the functioning of credit markets which been disrupted by the financial crisis over example we have been purchasing mortgage-backed securities which has lowered mortgage rates for every day american down to 5%. we have opened up a program that is called the talf, which has helped increase funding in reduced rates on consumer loans

like ata loans, steve loans and small business loans. we have taken actions to improve the function of the commercial paper markets of these various steps have tried to address the fact that during the crisis many markets have become disrupted and our actions have been trying to stimulate improvements and we have been fairly successful what doing that. >> in the second paragraph , you state that these actions have soften the financial crisis and have also approved a functioning key credits including the market for interbank lending, commercial papers, consumers, small business residential mortgages. how does that impact those in foreclosure right now? >> your time is expiring is not a good time to ask a question. mr. chairman will have a few minutes to answer, but we can't just extend it that way because in fairness to the other representatives. >> the mortgage market, consumer markets come interbank markets we have brought down interest rates, increased availability and improve the functioning of the markets in those areas.

>> how will it help those in foreclosure? >> the gentleman's time has expired. the gentleman from texas. >> thank you mr. chairman, chairman bernanke, way over here on the far right, your left. there we go. thank you. one of the things you mentioned in your testimony was about regulatory reform, and you had a bullet point there. one of those bullet points was enhanced protection for consumers and investors in financial dealings. then, on page 8 he said we are expanding our supervisory activities to include the risks focused reviews of consumer compliance and non-bank subsidiaries of holding companies. as you are aware the administration has laid out a blueprint for regulatory reform in the chairman also has a bill. one of the pieces of that is an interesting concept of separating the consumer compliance from the regulatory primary regulators and having a

separate entity. the first question i would have is, what you think about that structure? >> i understand the rationale and why people would like to have that and i'm not going to criticize it but i want to say my remarks the point with the fed has been doing a good job for the past three years or so and we are committed to doing it and if we allow this to work in that area we would be interested in doing so. >> are there dangers of bifurcating the regulatory process where you have got one entity looking at consumer products in determining what products financial institutions can offer and in endorsing those and then having another regulatory agency looking at the safety and soundness and how does that work? >> there are some costs to it in that he would have doubled the exams and there wouldn't be as much coordination between the safety and soundness and consumer protection issues so there would be some issues related to that separation.

>> so, at a time when i guess we are all feeling it is time to tighten up the regulatory structure, make sure we plug the holes and that's moving forward if we had some places where we weren't actually able to have the ability to or in fact doing our jobs, the separating those make sense? >> well, the argument for doing it i think is that those who believe that you need a separate agency that will be committed to consumer protection will have the institutional commitment outweighs some of these other costs and i simply noting the federal reserve is also committed in wants to be committed to that goal. >> if you were writing the regulatory reform would you keep them the same and not separate them? >> if i were writing it, i would keep the consumer protection which the federal banking agencies with additional measures to ensure a strong commitment. >> thank you for that. the second thing is, some of

your projections in looking forward, what you think the economy is going to be like in 2009 and 2010 in relationship to jobs for example. when you were using the numbers and assumptions you were using, did you assume that congress would not continue this huge deficit spending, where we are on track to literally double the national debt? are your assumptions based on performance going to get better if congress has a better fiscal policy or are your job assumptions based on continuing to spend money like drunken sailors? >> our forecast were based on our best projections of what government spending is likely to be and in particular includes the fiscal stimulus package. >> and come up with your assumptions than that this would be the job situation, assuming that congress does not do something about the current level of spending?

>> if the fiscal stimulus package did not exist for example we would anticipate there would be higher unemployment. >> you are not on the same page. the stimulus package is already done. i am talking about the fact that for every dollar this congress is spending right now we are borrowing 50 cents. if that trend continues in the future appropriations and some people talking stimulus to cop, with that alter your job prediction down the road? >> down the road it might. as i talked about in my testimony i do think it is important that we look at medium-term fiscal sustainability and we have a plan for getting back to reasonably low deficits and a sustainable debt to gdp. >> what you are saying is 2 trillion-dollar deficits a year for the next for five years is not a sustainable?

>> no sir, it is not. >> thank you. >> representative cleaver. >> thank you very much for being here. i read over the weekend that th@ doesn't all of this almost make for a perfect storm for another avalanche of foreclosures? >> the combination of unemployment and falling house

prices, the double trigger, this great high rate of foreclosures. our assessment of the foreclosures is that it is likely to be, it is likely to peak in the second half of 2009, corresponding with the peak in the unemployment rate and perhaps be somewhat less than 2010, but clearly we have high levels of foreclosures and unemployment rates would be the reason for that. >> this may be more may be theological, or philosophical, but if you look at, i mean you and others in the federal reserve and even in the administration are saying that things are stabilizing. we are making progress. that is not quite compatible with what you hear with the talking heads on television, and nobody can control those.

but, our attitude toward the trouble may be more problematic than the trouble, and i am wondering, you know, what can we do to change the atmosphere of the country? you know, consumers are loath to go out and by employers, even if they are seeing things stabilizer not come incline to begin to hire or rehire. what can congress do? what can be done to not to stabilize the economy but to stabilize our attitudes? >> i am not sure what to suggest there, except i'm obviously-- gude leadership and good explanations help but the public has been responding to some signs, some glimmers if you will of improvement, so consumer sentiment for example has improved somewhat as stock markets have gone up and as the

yellow kid looked better and the job situation cassilly stopped deteriorating as quickly as it was. i want to be clear that we have a very long-haul here because even though the economy turns up in terms of production that unemployment will stay high for quite awhile so it will not feel like a really strong economy. >> thank you and the yield back the balance of my time mr. chairman. >> the gentleman from indiana-- i am sorry. are you finished? mr. castle. i apologize. the gentleman from delaware is recognized. >> thank you mr. chairman. chairman, let me say in praise of you because my questions may imply some negatives. i think you are doing a good job on monetary policy and i think that meets one of the goals of the humphrey-hawkins act. just looking at that act, it outlines for goals for restoring

the economy, full employment, growth in production, the balance of trade and budget which i think price stability is the one that stands out now. i think that as a lot to do with what you do and maybe this is government 101, but i am not 100% sure what your role is with the administration. we are watching a circumstance in which we have deficits creating greatly. debt will go up over $10 trillion according to the budget and in the next ten years and so. of poor patients are up dramatically for this year at least. the health care legislation that is being considered in the house and the senate doesn't seem to have any real cost controls and it. some may be passing way but that but that is about the extent of it and are probably in trouble, because of that. my question to you it is, does the executive branch of government, the white house

consult with you about any of these broader economic issues? i am a part of their responsibility under humphrey-hawkins is to try to make progress toward these goals and it seems to me just setting monetary policy you know will necessarily solve the problems of the full employment, the growth production in the balance of trade and budget. i did not know if that is just off balance for you and for them, or if there is any consultation going on. obviously if you have any comments about your point of view on some of these expenditures, i would be interested in hearing them as well. >> of course the federal reserve is nonpartisan an independent. i to speak to the president's advisers periodically as they speak to members of congress and their staff. in terms of my policy positions, because i am nonpartisan, i try not to get involved in the details of specific programs, fiscal programs in particular but i have spoken to the issue of fiscal sustainability which i

did-- begin today and the importance of when thinking about the programs that one is undertaking, timeframes, cost in silwan to think about the implications for the federal budget, to make sure that we have a trajectory that will be sustainable in the medium term and i have made that point several times and am sure the administration as well as congress are quite aware that point and achieving it of course requires some effort. >> maybe we would be better served to let you go right note to the white house and keep making the point based on what we have seen. following up on something the gentleman from texas asked on the financial protection agency that is being proposed. did i hear you say, you saying that you would keep the consumer protection functions that you have the federal reserve there, if you had your preference in that area? >> as i have said, i am proud of the work we have done.

i think we are well placed to do it. we have a lot of talent. we have a wide range of people. in terms of economists, financial specialists, payment specialist as well as lawyers and consumer specialist. there compliments with the supervisory activities so with the congress decides to consider that option, we are very interested in pursuing it ourselves. >> and you indicated that, you said several new rules you are working on including rules on mortgage originators and that area. can you go through that list again quickly? >> we are having a meeting on thursday where we will announce some new rules that are being circulated for comment, and they are primarily, primarily disclosure changes, consumer tested disclosure changes for mortgages and mortgage origination cent for home-equity lines of credit and we are also going to address and that rulemaking yield spread premium which is of brokers and other lenders are paid for making mortgages so that is an issue we

will be addressing as well. >> thank you. at the governors' conference which just took place, which is republicans and democrats down an alabama i believe, mississippi i guess it was actually, they indicated they were not interested in a second stimulus. that is obviously something sort of hypothetical at this point. would you agree with that? i have heard you reference the fact that the first emulous is still being spent out there and has a long ways to go. >> i think it is less than a quarter of the first stimulus has been spent and we will have to see how the economy ball so i think it is premature to make any judgments. >> they also indicated they were concerned about restalin health care plan. the overmedicate costs and other things they are concerned about. do you have any-- i am sorry, my time is up. i may submit a question in writing to you. >> the gentleman from indiana is next. are you ready? we will then be going on the democratic side, seniority from

then on. >> thank you mr. chairman. vet chairman bernanke thank you for being here. let me ask you a question alaikum from an area that does a lot of manufacturing and is relying on credit. what would have happened last fall if we had just walked away, and had not passed the program? >> i think you would have had a very good chance of a collapse of the credit system. even what we did see after the failure of lehman was for example commercial paper rates shot up and availability declined. many other markets were severely disrupted, including corporate bond markets, so even with the rescue and even with the stabilization be achieved in october there was a severe increase in stress of the financial markets. my belief is that we have not have the money to address the banking crisis we might very well pettite platts of the global banking system that would have created a huge problem in

financial markets that might of left it several years. >> have lost any of the funds that the fed has lance? >> the fed on book value is a little bit under water on the aig bear stearns interventions, which we would very much not like to have them but we did not have the resolution which team. on all the other programs which is 95% of our balance sheet were making a nice profit which we are sharing with treasury. >> in regards to the talf program, which is, which is an area that we had hoped for some help on in that we had discussed before, at the present time, none of that has gone to a floor plan landing as we discuss. what other areas do you think can help open up the floor plan landing? we know the sba has helped a little, but what other avenues if any are being explored or do you think are available out there?

>> we are continuing to look at floor plan landing. there are several possibilities for the one in particular is we are doing a review right now of the credit rating agencies, the nationally recognized rating agencies whose ratings we will accept and the criteria of which we will accept those ratings. depending on what that list is, and what views they have about floor plan landing, it may be that some floor plan deals can get the aaa being-- aaa rating they need to be eligible for itself. they will be putting out roles on the criteria for choosing rating agencies. >> what are the other-- what is called the hareco rate, and on floor plan that is the highest of all. the reason for that, and is there a review of that, that might come down the road? >> the haircuts are set based on evaluations of the riskiness of the various assets. i think there's a lot of uncertainty right now about four plan given the state of the industry and what is happening with gm, chrysler and so on and

i hope is that in the next few months, as the situation become somewhat clearer it could be that ratings will be upgraded and that we will see is so much better situation but right now it is a lot of murkiness in terms of the credit quality of the floor plan loans. >> we are looking at a december 31 determination date as of now but i think approximately 27 billion out of the potential 1 trillion has been lent out. has there have been any looking to extending that termination date? >> we will extend it, if conditions warrant. we will try to give the markets plenty of advance notice. were not going to necessarily try to have any particular number. we are going to f.a. to make a judgment whether or not the conditions of the markets are sufficiently disruptive that such an intervention is necessary. remember this is based on a determination that conditions

are unusual pandith norm-- markets normalize we should no longer be using that kind of program. >> one last question, the small businesses in our area, they come up and say you know, we just can't get the credit we need. we can't get the help we need. and, i am not talking about the loans that should not have been made but the loans to good businesses that aren't being made. approximately what timeframe do you think the small business owners will be able to, to see the same kind of credit availability they had before? we have had so many credit organizations just walk away. can't make loans anymore, don't want to. >> in terms of having the exact same terms and conditions that they had before the crisis may be that will never come back because of credit is permanently tightened up in that respect. i'm hopeful that as things

stabilize, and we are seeing some improvement says the economy stabilizes that we will see better credit flows. >> thank you mr. chairman. >> thank you mr. chairman and i want to thank chairman bernanke for his leadership, for all the criticisms about transparency of the fed, many of which i share. you have always been a very plain spoken representative of the fed, certainly much more clear and candid than your predecessor, who made the oracle seem downright were those. to that and, listening to the previous questions he referred to, my friend, mr. cleaver, that is not going to feel like a recovery and we have talked about some of these issues which begs the question, the last to recover is which of minutely too much more shallow recessions then what we are in now, they were characterized as jobless.

do you believe that this will be a jobless recovery as well, and given the answer either way, what shape do you believe that recovery will take? >> we expect a gradual recovery. i don't know what letter that corresponds to. we should be picking up steam over time, perhaps well above the potential rate of growth by 2011. we do expect to see positive job creation in the end of this year or early next year, but it is going to take a while, given the pace of growth for the hannan plenary to come back down to levels that we would be more comfortable with. so in that respect it should take time for the labor market to return to normal. >> in your op-ed in today's journal and it your testimony you spend a great deal of time talking about preparations for the fed-- the fed is making in terms of the exit strategy.

what metric or metrics are most compelling that allow you to read a recovery and given, in your testimony there is a correlation between inflationary fears and your prediction of when the recovery begins, essentially munaf villosity kicks then and the money supply, the recovery and the inflationary pressure or concurrent, so what metrics the u.s. valuate that allow you to get ahead of that curve when that knock on the fed has always been that they are too late reading the trends? >> it is a very difficult problem and even though we have these unusual circumstances it is really the same problem we always face as you just pointed out, picking the right moment and taking your appropriate pace. since monetary policy takes time to work the only way we can do that is by trying to make forecasts, make reprojection and we use large amounts of information including qualitative information, and if

the receive, formal models, a whole range of techniques to try to estimate where the economy is likely to be a year or a year-and-a-half from now. is a very uncertain business but it is really all we can do and based on that we try to judge the right moment to begin to raise rates so we will be looking to see more evidence of a sustained recovery that will begin to close the albert gap and gid to improve to labor markets and looking for signs of inflation. there are expectations that would cause us to respond as well. >> given the debate about overhauling regulatory structures and the role you have played in that as well as others, you are having to carve out a separate approach to these new non-bank financial institutions. which, to me sort of raises the question, which is probably going to be one for historians

to resolve, should the barriers between banking and investment have ever been torn down? in other words was glass-steagall the right approach after the graham leach bliley the wrong approach? says the enough time lapsed as we move for the setting up an entirely new regime? >> i don't think that less steagall, if it had been imports would it prevented the crisis we saw. we saw plenty of situations where the commercial bank on its own or an investment bank on its own had problems with out crossed the text between those two categories. on the other hand i think that we do need to be looking at the complexity and the scale of these firms and asking do they pose a risk to the overall system and if that risk is too great, is there reason or scope to limit certain activities and i think that might be something we should look at but i think presents his quarterly

report to congress, his findings quite frankly are astonishing. according to the ig, the t.a.r.p. has become a program in

which taxpayers number one are not being told that t.a.r.p. recipients are doing what t.a.r.p. recipients are doing with their money. number two, have not been told what their investments are worth and number three, will not be told the full details of how their money is being invested. they found that even the treasury receives monthly reports on the value of t.a.r.p. investments, it will not make that information public. incredibly, the treasury department has taken the position that it will not even ask t.a.r.p. recipients what they are doing with the taxpayers' money. in short, the taxpayers now have a $700 billion spending program that is being run under the philosophy of don't ask, don't tell. however the committee has been asking a lot of questions about last fall's financial meltdown and its consequences.

and the key question is this, are these programs being run for the benefit of the american taxpayers, who are funding them or for the benefit of wall street? that is the question. without more transparency in these programs we cannot answer that question for sure, but what we have learned from the ig is not encouraging. treasury has hired nine private firms to be asset managers for the public/private investment program. all of these large firms are engaged in extensive private investment activities. according to this special ig, this arrangement is vulnerable to conflicts of interest, collusion and money-laundering. yet treasury has allowed these firms to share information between employees, who make investment decisions on behalf of the government and those who manage private funds.

a disarrangement is further indication that federal financial regulation is a bit too cozy with wall street. meanwhile, lending to american businesses and consumers remain weak. some firms claim to have used t.a.r.p. funds to increase lending, but others have used it to acquire other businesses or shore up their own balance sheets and then the award bonuses to employees. there is no evidence that treasury has made any attempt to determine whether t.a.r.p. funding has resulted in increased lending and whether it that has had any effect on reducing unemployment. i also want to voice my deep concern over recent news that treasury has requested a legal opinion from the department of justice, challenging this special inspector general's independence? congress would not have established a special inspector general to oversee the t.a.r.p.

if all we wanted was a yes man or yes woman, the treasury could ignore. it is critical that oversight investigations and audits of t.a.r.p. remains unencumbered. congress may have given treasury's some leeway when it comes to the t.a.r.p., but we didn't give them a blank check. the problem is we can't even say whether the t.a.r.p. programs are working or not. because the information that would allow congress and the taxpayers to analyze whether they are getting a good return on their investments has not been made available. i hope today's hearing in this special ig's report will be a wake-up call to the treasury and the fed, that our financial system cannot be run behind closed doors. again, i want to thank mr. barofsky for appearing today and i look forward to his testimony. at this time i yield time to the ranking member from the great

state of california, congressman issa. >> thank you chairman and thank you again for this the eggers oversight brick osu utt said so often all we ask for is transparency. today we will hear that all were not getting is transparency. mr. chairman because i'm going to include them in my opening statement i would like to ask unanimous consent that three pieces be put in the record. the first mr. chairman is your letter to tim geithner asking that he specifically include the recommendations of the special ig, something i'm not sure there's an answer but it is from february 5th. the second is yesterday's new york or i guess today's "new york times" that says they guesstimate worth little on bailout and i suspect that will be referred to many times today. in the third, because it is related to t.a.r.p. and to a case recently settled against the government, i have a letter in response to a letter from myself from which the chairman has been copied from more reece

hank greenberg, concerning his continued willingness to arbitrate rather than to litigate the disputes which so far he has been winning. >> without objection, so ordered. >> thank you mr. chairman. today we are going to hear about a $23.7 trillion figure related to the t.a.r.p.. additionally, we are going to hear that the full transparency which we ask four, which this president and this administration has promised is being blocked by the bureaucracy that often seems to say, just trust us and we will deliver. now just trust us and we will deliver quite frankly and i am not making a comparison except for the purpose of people understanding why be can't trust, bernie madoff said trust us, we have high returns. the fact is the treasury is saying trust us, you really don't have 23.7 trillion at risk. it's a matter of fact

effectively you are saying the only thing at risk is a fraction of the 700 billion we have committed. nothing could be further from the truth. over by in business one thing i learned was insurance policies cost money because the amount insured is in fact at risk. anyone who thinks that we mark-to-market assets to half of their original value, with some regularity when they include toxic assets and written down homes, and then believes that there would be no risk in guaranteeing those particularly freddie and fannie and other guarantees that are out there is simply living in a dream world. if we underwrite various forms over $23 trillion, we will in fact have lawsuits. there are no gains for all practical purposes and these assurances, so they are not offset by profits. in the case of the tartar directly, and i know we are going to hear from special ig today, there will be some good

news. there are edi has been some return and some profit on monies expended in the tarp. that is not so of many of our guarantees. most of our guarantees are in fact insurance without cost to both profit and nonprofit organizations. mr. chairman, i believe that this administration desperately wants the kinds of transparency that will allow us to uncover potential insider trading, the cozy relationships between part of a trading organization, which is trading for the government in part which is trading for itself and i believe only through our vigorous oversight will visit administration be able to create the kind of a stand which were on one side is the president asking for transparency and on the other side is a congress demanding it and in the middle is the ig trying to overcome a bureaucracy that has always been

able to out last@@@@@ @ m'@ @ ' m and nothing but the truth? >> aidoo. >> let's the record reflect that the witness answered in the affirmative.

>> special inspector general for the troubled asset relief program, sigtarp. pratt prior to assuming his position, mr. barofsky was a federal prosecutor in the united states attorneys office for the southern district of new york for more than eight years. in that office mr. barofsky was the senior trial counsel and head of the mortgage fraud group which investigated and prosecuted cases of mortgage fraud. also cases of securities fraud with respect to collateralized debt obligations. notably mr. barofsky led the broad investigation into the 55 trillion-dollar credit default swap market and is the recipient of the attorney general's john marshall award for his work. we welcome you, mr. barofsky.

you are allowed as much time as he may consume a we generally get people five minutes. we thought about giving you ten minutes but then i thought about the importance and i said as much time as you may consume but try to stay within ten minutes. >> i will, thank you mr. chairman. mr. chairman, ranking member issa, members of the committee, it is an honor and privilege to appear before you today and present to you our quarterly report to congress. in my testimony i would like to outline what is contained in our quarterly report section by section going over some of the highlights. in section 2 of the report we do is we do any jabbar quarterly reports, to summarize what this happened the last three months in the t.a.r.p.. this has been a busy corridor for the tarp. we have seen the expansion of several programs, the bankruptcy of general motors and chrysler an extraordinary government support of those industries, the

expansion of the mortgage my vacation program and the selection of servicers and the allocation of approximately $18 billion in support of that program. we have seen paybacks for the t.a.r.p. money, more than $70 billion for capital purchase program recipients and launch the public private investment program with the selection of nine asset managers and commitments provided to $30 billion to fund the program. that is all laid out in section 2. in section 3 we attempted to put the t.a.r.p. program in context. lutter especially started at the 700 billion-dollar program to purchase toxic assets. the t.a.r.p. has expanded to 12 programs a spaulding to $3 trillion but does not stand alone to support the financial system from the federal government. since 2007, more than 50 different programs with different agencies have been announced instituted and implemented. and a lot of what we have seen when hearing about t.a.r.p.

recipients and their participation is that it is not alone. maybank having invested in the tarbuck participating with that would bar of money from the federal reserve and there are so many numbers flying around that we thought to further the goal of transparency we wanted to put the t.a.r.p. in the necessary context of these other programs. that is what we have done in section 3 and for each of the 50 programs we put out three different numbers. one, the amount of money that is currently outstanding on each of those programs which is about $3 trillion. two, the high watermark from their inception until january 30, 2009 which is $4.7 trillion in the third number which is what the total exposure of each of these programs were fully subscribed to, each of the insurance contracts were used, all of the different programs and all the support in total and that number totals $23.7 trillion. now, since we have issued this

report there has been harsh criticism coming from treasury. i have seen public statements that attack the numbers in the report is being inflated. one press comment that as treasury spokesman described as ridiculous. we take offense to that. i think you look the report in context it is very clear where these numbers came from. they came from the government itself. these are all open sores, a public source of information. this is from the web site of the treasury and federal reserve. if the numbers are inflated then it was the government itself that inflated them, not us. secondly as far as the suggestion that we are trying to shock and all with this number again i think that we have made very clear in this report in black and white with this number means. will explain this number and false programs that have terminated. we explained that there are, that some of these numbers are collateralized. all of it is set forth in black and white but one thing that is very clear, the number is

basically just the accumulation of what these 50 separate programs are and what the total amount of financial support that the government has committed to. frankly what this attack is is they challenge to the basic transparency that we try to provide in this report to members of congress and members of the public, understand and total what is going on as part of the government support of the financial system in this crisis. that brings this to our next section, section 5 of the report where we talk about our recommendations and one of our primary recommendations brings us to the same issue of transparency. we have now been in existence for seven months in my office and over the seven months we have been pushing from my eight day my office when i made the first recommendation to push for greater transparency. that recommendation is one we continue to make today, which is treasury requiring t.a.r.p. recipients to report on how they are using the money. treasury has repeatedly refused

to adopt this recommendation and as a result in february we send out letters to each and every financial institution to ask them directly to report to us to prove that they can provide meaningful information, that there is the purpose to requiring banks to account for their use of funds. yesterday we should that audit results and the evidence is as we suspected, contrary to treasury suggestions banks can and should be required to report on how they are using funds. banks reported a variety of different uses, aside from just landing as the chairman noted to acquire other financial institutions to make investments in mortgage-backed securities. to pay down debt. all tippen forms of use of funds that can and should be verified and can be part of the basic transparency of the t.a.r.p. program. as we noted in our recommendations this is not the only recommendation regarding transparency that has not been adopted. we set for different recommendations including those

relating to basic concepts of taxpayers know what the value of the assets that there the chief investors for. treasure received reports on the estimates that we will not share them with the public and we think that is the failure of transparency. similarily blip recommendations related to the talf program and the public private investment program. one taxpayer who knows what is going on with their investments into cop, the watch allies, as has been famously quoted sunshine as the best disinfectant and will deter bad behavior. in section 1 of the report we talked about what we have been doing for the past three months, building r. audit investigation divisions. we are concluding six audits and are about to announce five separate audits. we will talk about that. our investigations division is continuing with open investigations and we will continue to strive with bringing greater transparency to this

program. mr. chairman, ranking member issa it is a pleasure to be here today to present this report which we believe is an essential part of continue transparency. we have had more than 12 million hits door web site since we started with almost 700,000 dell notes from these reports and i think we act to bring this necessary transparency and i thank you for your indulgence on time and i'll look forward to answering any questions you may help. >> thank you very much. we appreciate you being here. i enders than that treasury collects much data showing the value of its t.a.r.p. portfolio. it is there any reason why that should not be made public? >> in our view absence and may be very limited circumstances, we believe it should be made public because the one argument, one of the arguments that was offered against doing this is that it may impinged treasury's ability to liquidate some of

those assets but frankly we think that just like any asset manager or any mutual fund, investors have the right to know what the value of their assets are. franqui the one good example when you don't know is ranking member issa's example of a madoff type hedge fund with the investors can't see what is behind the numbers and we think this is an essential part of transparency. >> we are concerned about conflict of interest. treasury hired nine private firms to be asset managers for the t.a.r.p. public private investment program. including large companies such as blackrock, ge capital, real estate invesco and others. all of these large firms are engaged in extensive private investment activities, yet treasury has refused to require these firms to establish fire walls between their employees and who makes investment

decisions on behalf of the government and this to manage private funds. my question is why the treasury opposed fire walls at these firms to prevent conflict of interest and collusion? >> we have been pushing this recommendation over the last couple of months. we have consulted with the federal reserve bank of new york which operates similar programs. they have asset managers, and even treasury itself, we took a look at some of their programs and one constant is that when asset managers receive market-moving information and have the ability or know of that information to set market prices, a firewall comes attached to the responsibility. and every program other than the-- we have made this recommendation in our quarterly report. treasury has detailed the think in a lengthy letter their explanation as to why they are not requiring this. in short they say it is not practical in this program for a variety of different reasons. we strongly disagree.

we think that the taxpayer is entitled to the exact same protection the federal reserve requires in, when it hires an asset manager and we believe the same protection should and must be part of the t.a.r.p. program. >> is there a downside to this? the treasury argues that they make a number of different arguments. one is that it may be more expensive, that there may be a limit to the firms that are willing to participate. all of these may be valid arguments, but from ours protective when tilting the scales the tremendous dangers that come from not having a wall, from being able to take advantage of conflict of interest to why we recognize profits in different parts of the firm to the reputational risk. people are going to ask the question, wise blackrock operating under a wall when they are managing funds for the federal reserve but not when they are managing for the treasury? if there are incredible profits there is going to be a lot of explaining that needs to be

done. >> i find your testimony quite amazing. dui understand you correctly? let me put it this way. does treasury as qatar percipience what they are doing with the money? do they ask them that question? the overall, no. they have asked bank of america, and aig are the only capital recipients that are required to report the use of funds because some of the extraordinary systems also have reporting requirements but as far as the rest of the recipients, the treasury says no and they won't do it because it won't be meaningful. it will be reliable information so course the question we ask is if it is a meaningless exercise were you doing it with respect to, bank of america and very recently aig and we haven't really got an answer to that question. >> i think it is very important because in creating this in a discussion, it is about job

creation and of course i think that we need to have the information to determine in terms of what they are doing with it, because when i look at the fact that in the minority community, that the unemployment rate is 15.5%, and of course 29% generally, so it appears to me that that is illegitimate kind of question that should be raised, because we feel and recognize that job creation is the point. >> of course mr. chairman, i couldn't agree with you more and what treasury does is it puts of spending survey information so it is already collecting an affirmation, but as our audit demonstrate it is only part of the story. it doesn't talk about all of the things that banks are doing with t.a.r.p. funds, retaining capital cushions, all these types of things that goes to the heart of the question you are opposing. >> let me ask you, do t.a.r.p. recipients have any trouble telling you what they are doing with the money?

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>> mr. chairman, before i get my questioning and i am not sure that everyone understands that you came here on the day when others probably would have taken the day off. mr. chairman is actually true that today is your birthday? [laughter] [applause] >> thank you. thank you very, very much. [laughter] >> that is the power of the chairman if i have ever seen it. the coffee will becoming mr. chairman. >> thank you very much. >> just in case anyone thinks this is not a bipartisan committee jimmy duncan has decided to have his birthday today, just to make sure there was one on each side. [applause] do your part. the chairman blue without without even showing it.

it is much harder as you go down the day as. thank you mr. chairman and your coffee is coming. >> i am not sure that i can begin to tell you how pleased we are to have you here today, and we are pleased for a number of reasons and i will read from that "new york times" article if i may. injure williams, a spokesman for the treasury department called the figures distorted, because they did not consider the value of collateral posted on these loan programs. ..

to the greatest extent possible that's what that number is and coming from a slightly different persuasion even if you went back to the time moses parting the red sea and would still be on the right numbers. >> actually i think abraham would be sitting here trying to figure it out, too. there is no question this is an amazing amount of money when you look over thousands of years not getting to that number it is hard for people to understand but let's look at it another way. if in fact just 5% of this 23 trillion, 24 trillion under assurances of various sorts were to go bad is in that a dramatic

amount more than we ever authorized or appropriated from congress? >> it is of course a staggeringly large number. the t.a.r.p. itself are large numbers as have been expanded through other programs. >> previously kneal cash hari came before and we asked how much the assets are worth and he said he didn't know but he would get 30 days and in 30 days he said he would get it another 30 days. he's gone now, so you're the one we have. has the treasury been willing to cooperate and provide the information as to the current value of assets purchased? >> this is a recommendation we've made since early february and they haven't made disinformation public. >> said the assurances made by neil kashkari both in the last congress and this congress this was forthcoming in fact were not truthful in the sense that it doesn't appear as though they

were ever forthcoming to actually tell and if you will a mark to market with the assets are worth particularly i am interested in a ayachi's assets. do you know how much money has evaporated permanently from the 100 billion that aig has received? >> i don't have the information at my fingertips. we are doing an audit on aig where we will be able to report what's going on in those portfolios particularly in the context of its counterparty transactions but i don't have that information. >> to you think congress is over due to find out how many dollars have gone out in a manner that cannot be refunded? >> i think it is essential for transparency that congress and the taxpayers who invest in this program know what treasuries best estimate is to the value of their investment absolutely. >> because we ellen aig and there is litigation against the founder of aig, you are obviously very familiar with the

court decision and apparently falling on litigation, do you falling on litigation, do you ability to find out why we continue to spend my understanding is over 200 million legal fees trying to recover additional 4 billion which said we are not entitled to get back from the starting company as they said in very short time and said essentially the case never had merit but we've spent over 200 million is that something on your radar screen? >> we haven't addressed the situation. we have to ongoing audits with aig which is considering a good chunk of my staff that we continue to look for follow-up aspects we are also may be included in an overall audit we recently announced we are doing on corporate governance including the government's role in governing and as part of an 80% order of aig, so it may come in that context as well.

>> is there any way that we can get an independent assessment whether or not the federal government's pursuit of these lawsuits rather than going to binding arbitration which was offered repeatedly when mr. greenburg was before the committee is there any way to second guess this as a million dollars a week is being spent on legal fees? >> i think what we can bring for the audits is an explanation with the federal government's involvement has been in other words as an 80% over how involved is the federal government making this decision verses aig management itself. >> back to the firewall question and this committee is concerned about im and member of a public board. i own stock in that. i'm not allowed to trade that during blind periods. is it any different to say that a member of congress who happens to have a foundation which owns stock but also sits on the board allows an individual would you

say that is on wielding to say no you can't trade on behalf of yourself while in fact you have inside information, is that any more hoard than white or dealing with with various firms being given huge underwriting and huge leverage advantage is that the federal government expends in return for treating primarily on our behalf? >> i think that is the right difference is here these managers have up to $3 billion of taxpayer money and the whole design of the program is to encourage them to set prices and an illiquid market. this is a remarkable amount of power and once they make that decision it's a with remarkable piece of information that would be difficult for any member of congress to replicate because they are the design of the program to set prices so it is a much far more extreme example. >> thank you mr. chairman. >> high yield five minutes to the gentleman from maryland, a

very active member of this committee. >> thank you mr. chairman. it's good to see you again. have you had a conversation with mr. geithner since you took office? >> i spoke to him in late january. >> and that's it? >> that's it. >> how long was that conversation? >> a couple of minutes before a longer commission. >> the reason i ask that question is i listen to the chairman's questions and ranking members. it seems to me you all should be on the same team to a degree. i know there is a wall but i guess a lot of the things coming up should concern all of last and i want to follow up on some of the chairman's questions. you said a moment ago you got 12 million hits. that's a lot of hits to your system. what that means is that

apparently the public is very interested in what is going on with regard to this money, and i think the thing that concerns me is something you had said in the joint economic committee not very long ago was your concern about the appearance of some conflict. do you still have those concerns? >> i think my concerns are greater today than they were a couple of months ago when i spoke in the joint economic committee. >> and why do you say that? >> the absence of walls in this program. the danger here of picking the perception of picking winners and losers of giving these economic firm's nine out of the 100 that apply the ability to set prices and not the right type of restrictions in place to make sure they are ongoing to otherwise profit on fairly at the expense of the market if these firms start having the type of profit and other aspects of the firm i think the criticism that as previously levelled at the treasury to

picking the winners and losers, the opaque glass how decisions are made could be potentially devastating to the program and potentially devastating to the way american people view their government so it is a very serious concern. >> this morning on "morning joe" they had a fellow named mcdonald and he has written a book and he is to work for lehman brothers and he alleged that lehman brothers, that mr. paulson intentionally allowed lehman brothers to fail. now, normally i wouldn't pay much attention to that. but what we are beginning to see is -- then he laid out the evidence and it sounded pretty logical. and i think that when we start getting -- the reason i mentioned the 12 million hits, and i really believe this in

order for us to get past this economic situation we find ourselves in the public has to believe that we are doing the right thing and they have to believe -- one of the things that make them believe is transparency and i agree with you on that and so i am trying to figure out -- one of the things i am concerned about is a lot of times when we see a free port that doesn't look favorable a lot of times we have a tendency to shoot the messenger and not address the report but there's one thing you said in here that is quite telling as a former prosecutor and i guess you are still a prosecutor now. you said something about 35 open criminal investigations, and i know what it takes to get to the point to start even investigating assume only five of them have the legs on them, i mean are you seeing any kind of pattern? and i think what my concern is

if there is a pattern maybe this con chris needs to be doing something -- and i'm trying to figure out is their anything that we need to be doing to give you more power than when you have to accomplish the things you have to accomplish because one thing is for sure, if we cannot get to the point of the american people at 12 million hits and we can show them that we are doing the right thing with their money as the chairman he alluded to we are going to have problems. i don't see how we can get past this because the american people are not going to buy it. >> i couldn't agree more. the importance of transparency for the reasons stated as well as fundamental fact the taxpayers or the investors and the reason we see 12 million hats or than 7,000 downloads of the reports is because the american people want to know what is going on and understand these programs, and we serve a role basically to translate these programs from the very complicated descriptions the treasury puts out and try to

translate in english with tutorials and explanations so i do agree. as to the question about the criminal investigations we haven't seen a major pattern. we have a lot of investigations to the mortgage modification. there's a lot of scams of people trying to take advantage of struggling homeowners so there is a fair number but the rest of the investigations we would go across the board. we have incredibly complex securities and accounting fraud investigations of banks that have either attempted to or actually applied and received t.a.r.p. funds that may have lied to the government in order to get that funding. we have cases of insider trading trading on information that may have learned about the t.a.r.p.. really almost any type of crime you can think of we are touching on our investigations and it is what you would expect when you are putting so much money on such a short period of time many time many instances with few conditions and they really do cover the board.

>> thank you very much. ãi@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ >> let me follow up on his questions. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] these programs have grown into 50 different programs. >> at the top there are 12 programs and we talk about an additional 50 programs across the united states government, going to the fed to the fha. >> are you keeping a watch on these or just the 12th? some of this seems to have been dramatically expanded, and the nature of the responsibility required some of this to get to the place -- the point that he was raising.

do you have the research for sufficient investigation? are building an office. we currently have 70 personnel on board and building about 160. >> i read not all of your report but to scan through, and you do have recommendations and here. i notice only eight of 32 of your major recommendations have been implemented and then five of 32 partially implemented. do you have implementation or do you have any recommendation that we can put some teeth into what you're doing or recommending? >> we feel like our statutory role is to make these recommendations -- >> we have to pick up the responsibility. but it appears a number of your recommendations are not implemented or it appears some

of your recommendations take a while to get implemented for example executive compensation, i guess that was finally adopted a rule june 15th? >> that's correct. -- that is why we have seen since june 15th folks interested in paying their loans? >> i think that is an explanation offered. >> but it took six months to get that in place, that recommendation implemented. is that correct? >> i think it was four months from the february report. >> i think part of what you said as you are trying to develop and encourage transparency many of the things that deal with transparency are recommendations that have not in fact been addressed by the various groups that you oversee. that still remains the case? >> it does. >> that is unfortunate. and then maybe finally you can tell me -- first i didn't vote

for it but we started out with about $700 billion members of congress felt they were going to help, and then you said some of the liability grew to 3 trillion. maybe you could explain that, then 4.7 trillion than the total exposure is 23 trillion. so how did a little tiny teeny 700 billion-dollar program ballooned into $23 billion worth of exposure? maybe you can tell us the 3 trillion level how far we are at risk at that 4.7, and 23 is the ultimate. >> sure. for the t.a.r.p. we start off with 700 billion include a chart that gives precise numbers for each program and where they come from but in that number got expanded to approximately almost $3 trillion from other related

federal government programs so for example the public by the investment program, which we have been discussing is seated with about $100 billion of t.a.r.p. money but then the federal reserve and at one point the fdic were going to issue long recourse loans from the federal reserve, that is loans that don't have to be paid back posted with collateral. >> said the balloon did >> right and then go guarantees from fdic. and you have the t.a.l.f. program seated by 80 or $100 billion of t.a.r.p. funds so you have other federal government entities coming in and supplementing these programs and asset guaranty of $300 billion from citigroup which is on partly by treasury, partly by fdic and partly federal reserve said that's how we get to the $3 trillion. the other numbers are not on t.a.r.p. or the 3 trillion actually in the 23.7 it does include the 3 trillion from the t.a.r.p. but also other programs with nothing to do with t.a.r.p.

other than the fact they are also supporting the financial industry and other than the fact the same institutions that can take advantage of the t.a.r.p. also can take advantage of these other institutions and at times can use one perhaps to pay off another, so we have been coined as a bailout arbitrage. >> some 700 billion seeded potential 23.7 trillion? >> i would say 700 seated and then the other 20.7 trillion comes from other federal government programs that are non-t.a.r.p. related. >> writing the sort of same saddle. >> all for the support of the financial system. >> will the gentleman yield? me i asked mr. busheir man is that in your report, is that what you just stated to congressmen micca's questions, the stairstep? >> yes, the $3 trillion what is

already there -- >> up to the 23? >> all of that is set forth in section 3 with explanation with the numbers really mean. >> thank you. >> the gentleman from ohio, mr. kucinich. >> thank you very much, mr. barofsky. excuse me. i'm reading your report about lending where you talk about how banks have in leveraging funds to support lending activities and you say on commercial lending 20% of respondents reported a use t.a.r.p. for commercial activities. 17% of respondents deploying for other consumer lending. 13 per cent for small business. you talk about the capitol cushion house some banks are basically parking their funds to create a cushion against a loan losses. i looked at your report and i want to use the report as a

backdrop for a news report that came in today. now, we went back into the history and we know the first intent koln chris had purchased toxic assets which were mortgage-backed securities and we were told keep people in their homes. the administration threw that out the door, then we were told we are going to switch the t.a.r.p. funds to help bail out the banks, direct capital infusion. but i think something else has happened here and i want to make sure it doesn't seascape this committee and i hope you can tell me it hasn't escaped your notes. we are now seeing we have another switch that has occurred. we actually have the fed paying banks not to use, quote come excess capital to make loans. i direct your attention to a news report today which says that banks excess reserves at the fed rose to a record 877.1 billion daily average

ended two weeks ended may 20 from $2 billion the year earlier. excess reserves, money available that banks chose to leave with the fed instead average 743 billion in the first two weeks of this month. the fed is paying banks higher interest rates now to keep their funds parked at the fed instead of loading the money to the american people, is that not true? >> yes and the reed is an eye open up the book is page 142 of the chart of the report we actually have a chart that depicts except the when you're saying. >> tell the committee about that charge. >> it shows the increase in the amount of money parked at the

federal reserve over time. we think it's one of the fed programs, a different program but another program that we do think there is a connection between the federal programs and increased reserves being held. >> if the banks hadn't received this direct capital injection as a result of the funds is it conceivable that they would have according to this news report averaging 743 billion in reserves part of the fed; is that possible they could have had that? >> it may be the only because of all the other programs that we detail in section three of the report. >> of the other programs meaning government programs that have helped to sustain the banks, right? >> that would certainly appear to be the case. >> members of the committee, first we started out with being told that money was going to mortgage backed securities. the date and switch on that. then we were told it's being used to bail out the banks a week have the loosening of credit through direct capital

infusion. you and i know there are businesses in the communities who are credit start. meanwhile the fed is paying banks a premium to keep their money parked at the fed instead of loosening it out. this is one of fraud after another on the american people. they might use the excuse they are trying to control inflation. chicken out. unemployment is skyrocketing. businesses can't get money so they are laying off more people. and we are thinking that somehow we have solved the problem here. i want to submit for the record this report out of the bloomberg news service, and i want to ask mr. barofsky -- >> without objection. >> thank you. i want to ask mr. barofsky this money is fungible as we know. >> yes. >> that generally speaking you would agree that there is just no question that a significant part of the money that is being

parked at the fed like now is government money. that money from the government programs congress created. >> we would have to look institution by the institution but if we did so i would not disagree with what you're saying. >> i hope we can get another hearing because this goes to the heart of the entire bailout program. one thing after another, one bet and switch after another. >> congressman kucinich, in the audit i think we described the banks have communicated this as well they feel it's right in line with your comments and that is on the one hand they are getting pressure to increase lending and get this capital out there but also getting pressure from the regulators to maintain the capitol. >> regulators reed said. >> the fed and fdic, o.d. nicoe and sts and indeed that is what portion of this works so that is a very real dichotomy -- >> i thank the gentleman and i yield to the gentleman from tennessee, mr. duncan.

happy birthday. >> thank you mr. chairman and happy birthday to you, too. mr. barofsky, thank you for the report and i read for the great interest the story in "the washington post" yesterday where the lead paragraph says many of the banks that bought federal aid to support increased lending have instead used some of the money to make investments, repaid debts or by other ranks. i read at one point that back a few months ago the bank of america had taken 7 billion of the first 15 billion increased -- >> mr. chairman, we can to the cali. >> -- can't hear the colleague. >> is thought was mic on? >> yes, it on. bank of america took 7 billion of the first 15 billion they got and invested in the construction bank of china. i don't think any of foss ever

intended that this money be spent in that way. and i think a part of the problem and we were not given proper hearing this or a chance to offer amendments and things like that but i can tell you all of the business people, all the small business people in knoxville east tennessee have been telling me for months that what is being said at the top is not getting down to that level that what the press and secretary of treasury have been sitting under both administrations they are saying the land, land that these examiners are saying no, no, no and the fact is there was a cartoon to that effect in the congress daily publication that we get everyday at each of our office is showing the president and secretary of the treasury urging banks to lend and showing the banks with huge piles of money and in these examiners on the local level saying no, no,

no, and i've heard that from realtors, home businesses, bankers from all lines. but i want to read a portion of the letter i received from robert talbott, who has been one of the most successful business people in box phill. he wrote to me i've never seen anything like this in almost 30 years i've been in the business world. and he said whole world investments is the mother company of over 50 partnerships and mended liability companies all of which are involved in commercial and residential real-estate projects. we have been in business many years and currently own interest in 18 shopping centers and numerous other retail and residential properties. our loan obligations consistently are in excess of 1 million we have multiple lenders with which we do business, large life insurance companies regional lenders. banks. we are not currently in default with respect to any obligation

or have we ever been. our business depends on access to credit and@@@@@@@ @ @ @ @ @ we have been told by numerous banks that the secure lines of credit are being frowned upon by bank regulators, by the commerce bank in the first bank not to renew these lines of credit. this did not established a line, but it was clear that they did not want our business. they are in the process of extinguishing the lines of credit. this is what i am hearing. is this what you have been finding out in your investigation? is this true around the country? he country or is this my area and the usual in this regard? because i'm hearing this from many people. >> i think the tension does

exist and we've seen it across-the-board on the one hand the desire for banks to do more lending and on the other hand the regulators desire for banks to build capital cushions against future losses and it's a very real tension. >> i also hear this from many bankers who say that they can't speak up publicly because they will receive retribution from the examiners in the situation would grow even worse. >> we did see this in response to some of the questions. our source of information is the banks themselves who have come forward and pointed out this tension, and it's frankly just it's natural. the stress test and part of the results was to encourage financial institutions to raise additional 70 billion something dollars. these additions to capital are that, additions to capital. capital can be leveraged in instances to increase lending but there is attention and is

one from conflicting policy concerns. >> i've read in the top banking regulators twice to tell them those letters were several months apart to tell them this situation is occurring in our area and i hope other members of the committee are running into this in their areas will also because this money isn't being used i don't think in the ways in which the congress really intended for it to be used to treat thank you very much. >> i now yield to the gentleman from illinois, congressman quigly. >> you spoke of the extraordinary power placed with fund managers. but i think you have more faith in a fire wall system than others do. given this extraordinary power, almost life and death over so much money and what can happen with other companies are

firewalls unef? i guess there are fire walls, but is their anything else that can be done to protect the trust put in them? >> a fire wall alone what it be not enough -- our baseline suggestion where we felt the starting point should be and just as a starting we should be with the federal reserve bank of new york does with black rock and its facilities and with its asset managers in its mortgage-backed security bodying program. we thought that would be a good starting point because they do have a vigorous compliance set up and that is a starting point, but it isn't the ultimate goal. we haven't got into the starting point and that is why our recommendations are where they are but no, we agree. a wall standing alone isn't

going to do it if it isn't a vigorous compliance regime in place as well. >> were you aware were the conflicts were discussed when the congress made these decisions choosing the nine out of the 100? >> our involvement, we were not involved in the formation of the period before it was publicly announced. we learned about a couple of days before it came out. we became involved during the selection process of the line managers. one of the members of my team actually sat in on some of the interviews and we have been engaged in a dialogue with treasury back-and-forth on this issue since at least early june. >> did did the discussions of the conflict of interest and protections that were needed, with those discussed after the fact? >> we have engaged in an ongoing dialogue. there is an amendment to the housing bill called the ends in boxer amendment because those two sponsors that required the treasury to consult with us in the formation of these rules and

they certainly have abided by that and there has been constant consultation, not agreement that consultation. >> do you have the authority and the desire and i guess the ability to audit treasury's decision making process to pick the nine? >> we certainly are going to be doing an audit on the conflict issues and many of the issues associated with the program. we haven't announced and yet because the program itself hasn't gotten -- >> dewitt now. >> but we are going to do that. i think frankly there would be no way for us to do our job without auditing. >> given the lack of cooperation you are facing now, how is that audit process goin to work? >> i would have to say when it comes to conducting audits the treasury has been cooperative, they provided the documents we've asked for it made it their personal available timely for interviews, so i see no reason to where we are not going to be about to conduct audits as we

have our were others without interference from treasury. >> you suspect that could be completed by the time you do the next quarterly report and could be called your recommendations again? >> i think by the next quarterly report because of the program the final contracts have not been written. the time the fund managers are being given to raise the funds is up to 12 weeks which would take us to the next quarter. it's on likely. we may be doing something depending with the timeframe of the program is but until sort of all the terms are set and conditions are set it's difficult to launch an audit but we are going to do so. >> thank you mr. chairman. i yield back. >> thank you. i now yield five minutes to mr. chaffetz. >> i asked and answered in the letter, duncan's questioning he would like this submitted in the record. >> without objection so ordered. >> thank you for being here. i appreciate your work.

tax payer money is at hand and we have a role of responsibility in government to make sure it is dealt with in a responsible manner. my understanding is that treasury has asked the office of legal counsel and the department of justice to opine whether t.a.r.p. is subject to this secretary-treasurer. can you give an update as to where that is that on your understanding? >> my understanding is that is where it is. treasury put in their request and we put in our response giving our opinion the intent of congress was clear that we be a strictly independent agency within the treasury. date submitted their response to our response and the issue is pending. >> other than they're trying to get away from the obligation that sigtarp puts upon it have there been any further instances of treasury attempting to export control on your office or investigations?

>> nothing that even comes to mind. i think they've generally been cooperative with our investigations and audits. >> would be the implications if they were to have control? >> i think fit in the ig act and what treasury suggests we fit within that scheme secretary of treasury has the ability to shut down an audit or investigation of the treasury ig and we think there would be a great threat to our independence of the secretary had that ability over us. by way of an example obviously the treasury has been strongly worded that the portions of the report they disagree with. theoretically could the years that supervision authority to order us to keep that out of the report and keep that information from the taxpayer and members of congress i am not sure but we think those are the types of dangers we see if we are under the supervision of the secretary of that type of authority was asserted that would be a direct threat to the reason we were

created. >> i concur with that and i think you would like this body no and me in particular if there is any instance moving to get them to control that natural tension having an independent auditor, and is healthy for the process and the viability and physically to the american people at me talk briefly about the personnel and resources you have in place and question is do you need more resources my understanding is at the end of june you had 60 personnel with plans to get to 160 people, 35 ongoing criminal and civil investigations and over 3200 tips that have come through hot line and will not. help me understand what is happening within your department and the stress and workload with the personnel you have. >> we have been very busy. we have put together amazing team of auditors and investigators. >> what are you short? what do you need immediately that you don't have at your

fingertips? >> three now we're going through the process of finding the right people. one thing we identified in the report is we are projected to basically run out of money through fiscal year 2010. we have a budget amendment request to the treasury to get the necessary money that we would need to keep going through the end of fiscal year 2010. we've been working with them to achieve that as well as a wendi. obviously if that is unsuccessful we will have to come back to the congress and ask for direct appropriation but basically assuming we get that necessary money we will be good through fiscal year 2010. >> in the time i have left let me shift gears and talk about the value of the t.a.r.p. portfolio. there is limited exposure to this. tell me where you are able to see and what is the value to the public having that information? >> we think it's essential from basic transparency point of view from the members of public the investors to know what their investment is worth.

>> how far with that information be to provide? >> the treasury is getting monthly estimates right now say it would be a matter of -- >> the of the information but we don't? >> making the information public. >> i would urge this committee and i would hope we would insist those evaluations be made public so that the taxpayers can understand valuation of their assets. >> with the gentleman yield? is that something you believe would be appropriate to consider subpoena under cover so we could at least see what they see once and may be reached the same conclusion that you have reached? >> i don't think it is necessary leave my position to suggest what the committee should or should not subpoena but if the committee wanted that information the committee certainly should request and evaluate and make its own determination. >> i see my time is up. thank you mr. chairman. >> let me just say that is something that we are considering as well.

i now yield five minutes to the gentleman from virginia. >> thank you and let me add my voice to happy birthday and i want to thank you for your leadership. welcome, mr. barofsky. let me ask a question. is the t.a.r.p. program working and has achieved the and for which it is designed? >> i think that depends what your definition of working is. i think the goals of the t.a.r.p. have changed over time, different folks have different definitions of what is working and what is not working. i think if the goal was to remove $700 billion of toxic assets of the books that clearly hasn't happened. if the goal is to increase lending i think that unfortunately hasn't happened. if the goal was to avoid complete systematic collapse of the financial industry then that may very well have happened. i think it's impossible to look at the crystal ball and know exactly what would have happened absent t.a.r.p. but from what

we've seen from financial institutions have told we were on the presence of a potentially potential to the collapse and shoring up the capitol they have indeed achieved that goal if that was a goal. >> i haven't been a big fan of t.a.r.p. but i think you have to give credit where credit is due. i voted against the release of the second to launch which was the only vote on got to have as a member of congress because i didn't feel the accountability and transparency standards were in place. the fact become house had a framework to allow the senate didn't agree but having said that we were facing a financial systematic financial meltdown last september were we not? >> in the conducting of politics that is an opinion we've heard many times from the flow of credit may still be impeded the fact of the matter is the stability of the financial system, the stress tests on 19

banks for example would seem to suggest some stability has returned to the system lacking as recently as last fall. >> i think we're in a much different situation with last fall and it may well be t.a.r.p. is responsible for that were responsible in part. part of the reason why we do section 3 and talk about all these programs is so that you can have in one place all the difference supports out there that have been in place of which t.a.r.p. is only a small part so i think that gao has pointed out it is hard to say specifically whether the effect is from t.a.r.p. or a different program. >> it might be fair to say had we not had some intervention of some magnitude such as t.a.r.p. we might have actually faced in much more serious situation. >> who were there at that time including chairman bernanke and former secretary paulson. >> let me ask $300 billion in t.a.r.p. funding was invested

directly in systematically important firms to the capitol purchase program, the target investment program and the bush administration opposed giving the federal government and a bonus to banks in which they made equity objections. could these capabilities have been approved if we had not resisted this? >> i just missed the last part of the question. >> the bush administration, in making that funding available, avoided giving this to the banks when they made equity objections. that respect, could oversight accountability have been improved in fact if we had a voting stake in those banks? >> i think oversight and accountability would have been improved if there were more conditions in place and if there were oversight triggering mechanisms that accompanied those conditions. very few conditions put on the

initial output of science. whether that condition body don't think that is a policy decision that increase transparency as we look and see what's happened and convince the treasury to give an accounting on the use of funds. i think we can be in a better position to make that evaluation by looking exactly what has happened. that's why we push for transparency that the members of congress can make those determinations. you have all the information available to look back and say next time we are in a bailout what worked and what didn't work and what was the impact of the decisions. >> let me give an example bank of america now attempting to back out of the federal reserve's freeing financing arrangement. if we had insisted as part of the $118 billion we compton to be a way that one of the tools would have -- would be to have a voting stake in boa would that be helpful from an oversight accountability perspective from your view today?

>> is certainly would have an impact on the decision making process. i am not sure voting in particular from our perspective, from sigtarp's perspective, it certainly would make a difference from the treasury perspective to control the actions of the financial institutions. >> thank you. my time is up. >> thank you. i now yield five minutes to the former chair of this could become a gentleman from indiana. >> thank you mr. chairman. i don't want to be redundant because i got here late so i apologize if i ask questions you already answered but why do you think the treasury department is dismissive of your calculations? >> i don't know. i think that it is -- i hate to try to crawl into the mind of some of the comments that have been made. i think that if they had read the report in total and have read some of the charts and pages they couldn't be singing some of the things they are singing, the decisiveness and the description of numbers and

fleeted when all the numbers came from them so i am not sure. >> you haven't had a chance -- i've been told the you have only been able to spend one or two minutes with mr. geithner since he took over; is that right? >> i had several minute meeting with him followed by a larger meeting the public went 45 minutes that included a number of naftali to members of treasury, gao, that was on one occurrence in january. >> did he take into consideration your positions? >> we didn't have that much time in that meeting. >> did you make some suggestions to him? >> we conveyed where we were late january. at that meeting he announced his adoption of one of the recommendations which was posting t.a.r.p. agreements on the internet so that was progress we saw at that time. >> well, the sigtarp report -- tvd wants to keep any information from the people, is there a deliberate attempt to do that? >> i'm not sure what the attempt

is information the taxpayers and members of congress we believe should have as transparent is not being provided. >> you sit here and probably answered this potential federal support could reach up to 23.7. obviously there is some speculation about the liability could reach that amount. >> i think the speculation is it every one of these programs was fully subscribed to that that is the total commitment in guarantees but i don't think there is speculation why the numbers are. these are numbers provided by the federal government. if every one of these numbers any member of the public could go and and it's all publicly available information. >> if even half of that is correct we have got big problems. >> i think the important caveat we set forth in their report is we don't have 23.7 outstanding right now. right now the number is closer to 3 trillion since the inception of the crisis as we put out in the report the total

maximum is 4.7 jolie and but when you add up all the different programs including programs that have been paid back including ones canceled and collateralized programs the total amount of support which is what we are trying to capture this total 23.7 trillion. >> we are concerned about the terrorist problem as one of the top issues the american people are concerned about and i understand sigtarp has recommended the treasury require its private fund managers to collect information on whether any of their investors are involved in organized crime terrorism or fraud in order to prevent groups from using ppip to guilaume germani, and currently, as currently designed are you confident the obama administration has taken the steps to prevent organized crime and terrorist groups from using ppip money to launder? >> i think they're most of the way but there's more that needs

to be done. they are requiring these managers to use the normal procedures in different procedures to screen for that information. we've recommended and they haven't adopted is that the treasury not only receives all the information about all the different investors but also have the unilateral right to kick one out. to use an example let's say a fund manager does all the right diligence but doesn't know that a particular investor is a pending fbi investigation into them being involved in drug-trafficking organized crime or terrorism. they would accept that individual or institution into the program and wouldn't know any better but we law enforcement partners could run those names and a database, kick something out and reject that investor. we wouldn't necessarily want to tell the ppip manager we have a pending criminal investigation on one of your clients but it's important the treasury have the ability to unilaterally block those folks out of it and that is a recommendation we have made and has now been adopted.

>> let me end by asking this, the t.a.r.p. funds that have been allocated by koln chris does not reach the $3 trillion level. what do you think is going to happen? are they going to ask for another bailout? >> congressman, i don't have that crystal ball. >> do you think additional funds will be required to meet their obligations? >> i really can't answer that. i don't know. i think there is a lot in question what's going to happen to the economy the next three, four, five, six months in the next year and i am not in the position -- >> what would your recommendation be? >> the treasury stated they don't need additional funds, so i think at this point i assume that's where we are. >> the gentleman's time is expired and i now yield to a single member of, congress of an age but years of service. >> thank you very much and happy birthday. this is the beginning of your

life mr. barofsky thank you. you have a really important job on behalf of the american people and your staff and we thank you for that. first question what more can we do to help you do your job? >> , chris has been amazingly supportive of our agency since we have begun and we have i think all the necessary tools in place right now. >> your report cannot today most members of congress haven't had a chance to digest it and take it apart. would you be willing to come back or your staff and help figure out some of the information we feel we still need in an interpretation would you be willing to do that? >> of course my staff will be available to brief your staff and any time this committee or subcommittee is want to hear our testimony we will be available. we are a creation of commerce and it's part of our job to inform the american people through its representatives of everything going on, so of course. >> you have a hot line,

877-sig-2009 come you received 2,000 tips from the american people and were involved in activity they've now reflect on might not have been aboveboard they can report that to you, can't they? >> yes and they should also go to the website www.sigtarp.gov. this is an important aspect have been the and tips from the hot line. we strongly encourage -- >> some of those steps are good? >> they are very good. >> said the american people have to as well and i think the fact is a free phone number, 877-sig-2009, people ought to use it. and this was network gentry interest knowledge all across america and we need to put together. i can tell in my region of northern ohio mortgage foreclosures are going up,

unemployment is coming up and for businesses have told me they can't get credit and these are excellent businesses. the system isn't working at the grass-roots level in ohio. my major, and i voted against the t.a.r.p. and the bailout because i thought it wasn't the right means to resolve the crisis in the mortgage system. we've done that before back in the 80's when we used mark to market accounting we actually went into the books of troubled institutions using fdic examiners and sec accounting accountants, so we had accountants plus bank examiners and the burden wasn't put on the american people. this was when continental bank be held in italy and the banks in texas went down so when they came up with this concoction of this particular means investing all this power in treasury for converse six weeks before an

election i have to tell you i became degree suspicious, and i still am and one of my questions to you is you talk about you have had background in mortgage fraud. have you ever had a background in control fraud? and systemic fraud? >> i don't know how much control fraud or systemic fraud as sort of cases are concerned. i've certainly been involved in securities fraud of some truly systematically -- would be to a considered systematically significant institutions and looked at some of the accounting frauds. >> i would urge you to look at of course the in the wrong situation, who was hired, the staff you are when to be doing and if people at a high enough level because this goes to institutional structures in our country and ultimately it had

international repercussions. but i would urge you to look at the enron situation and think about the kind of staff you might high year in the additional authority is you've been given. >> it's funny you mention that because we recently brought on -- i prosecuted the refco matter and we are bringing on world. >> bill black of missouri, kansas city, he had worked for the commodity futures corporation back in the early 90's, i don't believe he is for higher but his way of thinking about what went on is very useful and i wish to share that with you. i also want -- to put two issues out. one is warrants, and my deep concern about for instance goldman sachs and their warrant, it is my understanding that the american people have the right to 12.2 million shares of gold

according to the numbers i have come and gold and actually has the privilege under the agreement determining when the tax payers have to sell those warrants, so they control the price and timing and i think it's really important of the war -- warrant that you examine these warrant potentials and the timing for the american people because the other day the price was $1.60 a share and apparently goldman was saying we will sell it for $1.22.9. that difference in yields for injured $50 million if we were to sell today. what if we held it for nine years? nobody's asking those questions and i'm concerned the american people with goldman and other companies get their money back plus. >> we have an ongoing audit in to these issues on the you aren't repurchased process, so that is something pending we are looking at.

>> mr. chairman i want to say for the record i don't have time to ask on the 877-sig-2009 warrant -- ppip program, the people involved in inventing the mortgages of prime instrument, then moving it to market, changing from a bond to a security and then creating of the derivative instruments changed the company they were in but now they are the same people that have gone to the fed and they've gotten these contracts. i think you need to look at people and where they were in the system the last 20 years and what impact that has had on our economy and who is in place in my mind with potential power to cover over some of their own very bad mistakes, and i would urge you to look at those firms closely. thank you. >> the gentleman's time is expired and i now yield to the

gentleman from north carolina. >> thank you mr. chairman. the tune of $23,700,000,000,000 worth of taxpayer exposure for the bailout is quite striking and frightening. i appreciate your testimony and frankness and i'm grateful president hasn't fired you like he's fired to other inspector general's. >> me too. >> that's true. but i do think it is a basic concern the administration is choosing to remove inspectors general because you as well as your colleagues within various inspector general offices across the government to a task of making sure the government accountable to the tax payer and with that i would like to yield to the ranking member. >> i thank and following on that line, you're current capacity i will bring to your attention according to "the wall street journal" some of the private fund managers selected to

participate in the ppip may have consulted informally to the obama administration in writing the ppip itself in other words they wrote what they participate on which is not surprising additionally "new york times" reports that black rock ceo lawrence was been chosen as one of the ppip fund managers is a member of larry summers in our sergel program lets him select fund managers to use 75% of the tax payer money in assets. my question to you is if in fact this and other activities began to look like a cordial relationship where information is being passed, positions are being given because of the friendships of people that go in and out of government are you in the position to investigate that? ..

it is clear from the perception area alone that we have the tightest lot to prevent them from taking advantage of this, which they had a hand in creating. >> this is 27. some -- this is 27 points, -- this is 27.3 million and how wheat -- how much would we have to pay to guarantee all the underwriting that the government is doing? how much would we be doing? f we cannot the institutions i don't have the number at hand position the fdic, federal reserve, pension guaranty, national credit union basically financial services roundtable of

ig's to mcavoy can for the seminar on the table and the chairman said vivant increased the size is it fair for us to consider here the fact that when recreated your position recreated a position thinking in terms of a 700 billion in t.a.r.p.. today we're thinking in terms of and into recovery and oversight process that now has dozens or more ig's and loosely associated not able to a board made their activities and is by design. do you believe that either yourself or it your position or another position should be created that would be the ig's for financial oversight that would be able to bridge all these various ig's and so that, in fact, our systemic risk which is 23 plus $7 trillion over ask cut in french be overseen an accord made by? >> i think the most vital thing that i have a as an inspector

general being branded to the inspector general system coming here last december. >> banaa to the inspector private. >> is my independence, it is the most vital thing for inspector general and i think the problem when you have these coalition of ig's is important for us to coordinate with one another and in the t.a.r.p. i informed the councils of a different ig's that touch on t.a.r.p. progrs we've made about investigations and house of committees and that type of coordination is good but we also have a and i will be going on thursday to a regulatory ig, there is some lovely lunch so we are coordinating with each other and i think putting an umbrella over other inspector general that almost invariably a bullet hit on their independence and we are coordinating. >> but in various since we are seeing you it is a princess to be able to give us if you will the results of that accord nations so that we're looking at the entire provincial oversight

as we are here today. the me ask you one closing question -- in the case of chrysler it has been reported and i believe this to be true that we have given up $3.8 billion worth of a dieppe -- dip financing we gave them to go through a process and then sold them and took back nothing in return. is that something that needs to be investigated as to whether or not it was necessary to write off nearly $4 billion of of the last money in a chrysler? >> our report we do tell the members of what has been waived in chrysler and general motors and what has been received on the other side including equity interests here, i think that the facts are what they are on that and certainly open to any fair inquiry as to having add to that situation. >> perhaps it is us to give us the facts. >> certainly something we can

look into potentially or one of our oversight partners as an audit as to what that decision making process was given the gentleman's time has expired and i now yield to the gentlewoman from california. >> mr. chairman, i want to say to you on your birthday that yesterday is the pass, tomorrow is the future, but today is a gift from god and that is why it is called the present. happy birthday. >> thank you very much. >> i want too. >> to the bank of america and thank you so much speak 13 and for being here and being so open with us. according to recent reports bank of america is now trying to avoid paying billions of dollars in fees to the u.s. taxpayers in return for the $118 billion in guarantees they received from the federal government. according to the bank of america the agreement was never signed with the guarantees have been

announced as part of the assistance they receive to complete the acquisition of merrill lynch. to you believe that the bank of america benefited from increased investor confidence because of a reception they have it federal incensing other toxic assets? >> i'm reluctant to comment as is by general on an ongoing negotiation between treasury and bank of america, i think that's the events are they are on that but i think it may be crossing in line as an agency increase our publicly commenting on an ongoing negotiation so respectfully ask your permission not to answer that question. >> we have a former secretary of the chairman in here for five hours last week, it was like trying to unscramble rotten eggs. and it is very frustrating to us. has the treasury department

provided to be an explanation for why they did not require bank of america to join the asset guarantee program agreement? >> we haven't gotten that, we have been monitoring the program since it was announced in mid battle little information basically there has been ongoing discussion. we have an audit going out and tracks the fine work of this committee on the bank of america and its participation in various t.a.r.p. programs which will be presenting in september and i'd be happy to come back to the committee and discuss his findings to the committee if they think that would be helpful. >> yes i would ask the chair to hold a follow-up meeting in due time so that we can follow-up on some of this because you may drive into my next question i wanted to ask. have you discovered any other large scale agreements of the federal government's wish to the

federal government has entered into with financial and institutions while filing contrast to force a proper retirement of the taxpayer's investment? so this is a question that you can keep in mind for our follow-up meeting. i do hope it is said that sometime in the very near future. also let me see, in your april quarterly report you noticed the risk of conflicts of interest and the pollution level of ability is an inherent in the design of the public private investment program, ppip, however, the treasury department has declined to adopt your recommendation to impose an informational barrier between the employee is who do or do not handle ppip funds at the time these funds, the ppip fund managers.

apennines, ppip fund managers. can you comment on that or should we wait for a subsequent meeting? >> absolutely we think this is a fundamental deficiency in the current structure of the ppip program. we think it's absolutely essential that there be an informational barrier at the wall that prevents the managers from taking advantage of confidential markets moving information that the fund managers are going to have everything is a problem and think it's a deficiency in the program. >> thank you and i do believe that treasury department has been willing to impose the measure despite having place similar restrictions on asset managers incomparable federal bailout related programs? >> treasury has provided to us we included in our report a very detailed written description of the edges of occasions and reasonings. in our report we address each and show why we disagree with them. one that has been practical that the design of the program does

and it is susceptible soon such and it may very well be that there is a program fundamentally flawed in this design. in such a way in its current structure may be impractical. our response is and that's because it is such an imprint issue for such a variety of reasons that if it is impractical with a current nine fund managers before reflecting days treasury should have changes criteria are did what was necessary to put in the necessary walls to protect the taxpayer. >> my time is up and mr. chairman are to open our subsequent hearings with mr. barofsky and that we can get these recommendations and get some ideas about how you would assess this standard and functions of such a department. as i thank you nra going to recess? >> no, we are going to continue all the way through to us to

give you an update. the house is in recess which makes a good for us and making continue. we are not in recess but the house is in recess so we can do our work. >> thank you mr. chairman. >> i still to the gentleman from california, mr. bilbray. >> thank you mr. chairman, i'd like to join the committee and congratulate you on your birthday and all of us or witnesses to how quickly blew out that can also make and negotiate with mr. waxman for a term credit for you on that item. [laughter] first of all, i watched this morning, mr. barofsky, the way you were attacked for releasing this committee, and i was like to say to you as one member of this committee thank you for giving us the hard core fax. i disappear member when you get a tax like fats and basically you brought a message to a lot of people didn't want to hear in this town contrary to public

believe the ancient egyptian tradition was two always send your best people to give bad news for. because the guys marissa with a good news for sacrifice to thank the gods for the good news. so is to be a credit to you to understand you are attack because you're bringing this up but i want to thank you for that and i'm sure not just this committee by the public at large is going to thank you for your report to. the hard core faxed to get in trouble. speaking of footprints. the whole concept of looking at black rock and some of the other nine players here where the footprints of the federal government are picking winners in this whole game, do you have any idea and if you don't need to have time i understand because you can get back to us in writing, how did these nine

major players get chosen as the winners in this game to be blessed not just by the bureaucracy and the federal government by by all the taxpayers? how did these nine players become the winners in this game as opposed to the other losers pointed out by the former mayor of cleveland and, mr. kucinich? >> the treasury's explanation is they put out applications and receive john hunter for applications. next up was to remove duplicative applications incomplete and came down to 102. then then apply the criteria which they put on the web site of what they're looking for a in the ideal asset managers and basically those that didn't meet tax cut i think they narrowed the number down 213 and ended a series of interviews and ended up with a final nine. i think those are the numbers and isi members are likely reflected in our